Unethical Banking — But Is it Illegal?

Kevin Cox
3 min readApr 14, 2023


Art credit Socha Design

Banking today is unethical, but is it also illegal? Banking is unethical because banks unnecessarily and knowingly do not share any of the interest with the borrower.

Banks have a license to create government money for borrowers. A borrower comes to the Bank and enters into a contract for a loan. The borrower asks the Bank to create money for them. In return, the borrower agrees to repay the money with profits they earn from using it. The borrower also agrees to pay interest on the money they have not paid back.

The interest covers the loan risk because the government’s money is created and has to cover the Bank's costs. The borrower pays the interest, but the Bank assumes it supplies the money as it adds interest to the amount still owed. The Bank has received extra money but it gives nothing in return. What it can do is share the interest by subtracting some from the amount owing.

The Bank acts unethically because it does not share the interest with the borrower. It acts in a Negative Reciprocity manner, as explained in this video.

The Bank may even act illegally because it charges interest on the money it did not supply the borrower.

There is a solution that the banks can implement tomorrow that will solve the problem while still giving the Bank the full amount of interest.

The solution is for the Bank to share future interest and act in a Balanced Reciprocity way.

The loan terms can be changed to include giving the borrower a share of the interest by subtracting a percentage of the interest from the amount owing.

To distinguish them from existing loans, these types of loans could be called Community Loans. This is a fair transaction because all the parties taking the risk get a share of the interest when the payment is made.

The Bank gets back its money faster and can lend it again, so it is no worse off. The borrower is better off because less interest is paid, and the loan is more productive.

Not compensating for the risk is unethical, but is it illegal? Even more pertinent is it increases the productivity of the financial system as it costs less to create money.

The Difference

A 10% $500,000 loan is repaid over 10 years with a regular loan compared to a Community Loan where the interest is shared equally between the borrower and the lender.

When a borrower pays back their loan earlier, the lender can lend the money again and the borrower benefits by paying less interest and finishing off the loan sooner. The loan is more productive as it costs less to create the money.

All lenders, including the Reserve Bank, can use the approach to manage risk and increase and decrease money flow in different areas of the economy.



Kevin Cox

Kevin works on empowering individuals within local communities to rid the economy of unearned income.