03/03/2014 05:16 GMT | Updated 30/04/2014 06:59 BST

Is Ethical Banking an Oxymoron?

On the day that Royal Bank of Scotland announced a bonus payout to it's staff of £588million in spite of an operating loss of £8.24billion, one had to wonder if any lessons were really learnt from the mess that was left after the banking crash only a few years ago...

On the day that Royal Bank of Scotland announced a bonus payout to it's staff of £588million in spite of an operating loss of £8.24billion, one had to wonder if any lessons were really learnt from the mess that was left after the banking crash only a few years ago. Certainly it seems that bankers are still firmly of the opinion that gambling with other people's money should earn them salaries that would make even the most flamboyant footballer blush.

Many of us find the argument trotted out by these institutions about paying the going rate amid fears of losing key people to others offering bigger payouts, just a tad too close to blackmail for comfort. It's a cleft stick that's used repeatedly to beat us mere mortals with and rather reminds me of the old adage about people who insist on micturating on your footwear whilst commenting on the inclement weather.

When a bank is 81% owned by tax payers, it's they who are funding the lavish lifestyles of those who effectively walked away untouched by the disaster they were largely responsible for. It's little wonder then that bankers are still rated on the ethical continuum as only slightly more honourable than carjackers and granny bashers.

RBS chief executive, Ross McEwan's staggeringly understated admission that : "We happen to be the least trusted bank in the least trusted sector in the marketplace" hints at an ongoing state of self delusion. He regards our mistrust as if it were some random happenstance entirely unconnected to news of such breathtaking bonus bravado and piss-poor performance. But then I suppose anyone that can reward his staff for losing over £8bn of someone else's money with cash picked from the very same pocket obviously inhabits a far less judgemental world than the rest of us.

Movies such as the Wolf of Wall Street have done little to dissuade aspiring bankers from believing that lunch is for wimps or disproving to them that such meals can ever truly be free. There's long been an argument that ethical banking is something of an oxymoron and the only way to make money is by doing what bankers have done for centuries - believe in your own godhead, bank the bonus, and ignore the bar bill.

But a growing number of businesspeople, investors and yes, even bankers, are looking to distance themselves from these sorts of excesses while still trying to make a respectable living, in all senses of the word. There's quite a buzz about social enterprise at the moment, seen as the fresh faced lovechild of socialism and capitalism, it's increasingly being favoured by entrepreneurs who are rejecting the previously received wisdom that to be successful in business you have to be single-minded, selfish and soulless.

So it was sad to see one of the oldest established forerunners of this movement - The Co-operative - also falling foul of many of the same pitfalls as the RBS. The announcement this week of the largest loss in it's 150 year history was followed swiftly by confirmation that many of these losses could be traced back to the mismanagement of it's banking arm, something that came as no surprise to most of us.

Considering the Co-op's heritage, there were some striking similarities between their mistakes and those of the RBS, as both apparently over-stretched themselves with acquisitions that were poorly administered and hugely damaging. In the case of the Co-op, the merger with Britannia Building Society and the failed attempt to buy a portion of the Lloyds high street banking group, left them with a 1.5bn hole in their balance sheet.

The revelations over 'crystal Methodist' Paul Flowers served to show how little prudence was in evidence from senior management and in similar style Fred Goodwin reportedly ploughed on with his expansion plans at RBS, paying scant heed to their looming liquidity crisis. In Goodwin's case, he at least had some qualification to be in the position he was, but it seems that both banks had figureheads who's ambitions outstripped their ability to exercise proper control over such large institutions.

The final ignominy for the Co-op was their own RBS-style bail-out requiring around 70% investment from private equity, much of it reportedly from the very hedge funds that they had previously avoided on ethical grounds. Although I suppose at least they didn't expect the taxpayer to get their chequebooks out.

The reaction from both banks to their falls from grace has been markedly different though. The Co-op is currently consulting on it's future by asking it's customers and it's members what it should do next. Pragmatic decisions are being taken across the whole organisation, sadly with some job losses in the mix. One of the more drastic changes being considered is the severing of it's traditional ties with the Labour party, something that many people have blamed for the Flowers fiasco.

Another conspicuous difference is that the Co-op aren't publicly rewarding themselves for their own shortcomings, after cancelling staff bonuses last year that were reportedly worth around 11% of salaries. I suppose it remains to be seen if they'll have a mass exodus from their ranks to these mythically higher paying institutions as a result, but so far that hasn't been in evidence.

What is apparent I think is a much greater degree of contrition, and even embarrassment, from the Co-op. They realise that customers have lost some of their faith in the brand but they're not looking to duck the blame and carry on regardless, as RBS seem to have become so adept at doing.

Of course the Co-op does have a cleft stick of it's own preventing them from jettisoning some of the values they are seen to stand for in case they lose investors they attracted because of them. There's a fine balance to be struck between taking pragmatic action to maintain the business and the loss of the wherewithal to continue on their current path. But customers and investors also have to consider where else there will be to put their ethically earned money if their lack of continued support leads to the total demise of the co-operative ideal.

Maybe because of those principles and the involvement of their members, or perhaps just due to plain old pragmatism, there seems to be a genuine motivation to fix the problems at the Co-op from within. Perhaps also because they don't have a large pot of public money to call on to cover their own shortcomings, they realise that have to be seen to be sensitive to the opinions of their customers. Whatever the reason it's going to be interesting to see how both these institutions ride out the ebbing tides of outrage and support that recent and subsequent events are likely to engender.

We certainly seem to be seeing a perfect clash of ideologies over how the current impecuniosities of each organisation are resolved. One that I think may well demonstrate that how your find your way out of the woods is almost as important as how you got there in the first place.