European Ethical Bank: the first ethical, growth-agnostic, fully compliant banking model

Financialisation of the global economy has transformed real-world products into financial asseets. Consequences are far-reaching. We need to go to specialised shops to buy more expensive "healthy-food" meaning that from "just food" we don't expect to be healthy. Houses are not used for housing but are turned into "investments" for which it is not important how they are used or if they are used at all. Health is multibillion business that cares less about healing people then making profit. At some point in recent past we were hearing how sustainability is going to be "the next multibillion business" but luckily this trend hasn't lasted for long. It was quickly replaced by new nonsense of "security and defense" being new source of "sustainable and healthy economic growth". If we would call it by its real names like "killing and destruction" it would probably closer to truth, but much less prone for such blatant misuse of the term.

Even more, the new narrative has perverted the very meaning of the words and language that we use. When we are talking about paying taxes, we are usually talking about "tax burdain" implying that paying taxes is something difficult and not welcome. On the other hand, for finding a loophole in the system and avoiding paying taxes, we say that we have found a "tax haven" - a nice, tranquile and safe place for our money.

Normalisation of the nonsense has turned our world into a dystopia in which we don't even think about craziness in which we live. The very core of our financial and economic system is rotten, is not aligned with beliefs and values of vast majority of the humanity and does not contribute to needs of the communities.

The scale of it is global and grotesque. If we look to the very definition of money, we'll learn that money is debt and that it has several core functions, one of which being preservation of value. We all can testify that today's money does not possess that function anymore. Continuous hidden and visible inflation makes our money being worth less every day. Consequences of that are normalised but nonetheless dire. While in the past when money still had its original properties it was possible that people receive their salary and put aside part of it as a saving for future needs or a rainy day, today it is not possible anymore. We are all forced to become investors in order to preserve value of our money. But by becoming investors, we are pouring fuel on the fire of financialisation and just sinking deeper and deeper.

The same goes with banks as institutions. While originally banks were formed as community organisations that are managing assets of the community and investing those assets in the development of the community, nowadays they have become self-oriented entities, extracting financial value from just every imaginable human activity on the planet and using this financial value for new rounds of extraction without any connection to the real-world values and community needs.

Unfortunately, many of attempts to address the deficiancies of the economic system, such as push for green economy, circular economy, sustainable economy etc. has failed the victim of financialisation and has been hijacked before they even managed to start implementing its ideas and solutions at scale. Discussions about plastic polution were revolving about different technologies for recycling or EU rules that were mandating plastic caps to be attached to plastic bottles to reduce risk of being thrown away, but elaboration why almost all of the products are packaged in in the plastic in the first place was almost non-existent. "Green and sustainability" push in EU and US, implemented through ESG regulations, has implemented very comprehensive and complicated rules and standards on how the sustainability should be reported without introducing the science-based authentic standards for sustainability measurement! How could be possible to report on something that you cannot measure? It's not controversial statement anymore that GDP is not good measure of economic success and yet it still stays, by the force of the international accountancy standards, the only measure by which vast majority of business decisions and economic policies are evaluated and planned.

It is a fact of physics that infinite growth on the finite planet is impossible regardless of the fact that some Nobel-prize economists are claiming contrary. In the conflict between laws of physics and laws of economy, nobody should doubt which laws will prevail. But our monetary and financial system is rooted in the concept of charging interest. Charging interest requires growth as without growth it is not possible to repay interest on the capital. So it's theoretically impossible to challenge the concept of the infinite growth without challenging the concept of interest. It is surprisingly difficult considering the fact that charging interest on lending capital is considered as immoral and usually as a mortal sin by almost all of the world's religions that define some of the very core values of the humanity. Read any of the religious scripts and usuary is among worst of the sins. Judaism, being frequently cited as an exception, also has very clear mechanisms of debt recycling. According to judaism - debt that has not been repaid after 7 years should be written-off. Even the consequences of the debt should be compensated in years of jubileum (every 7x7=49 years). Dogma of non-recyclable, ever-growing debt is deviation from all core values of the humanity, but has become a norm.

Raising inequality is not an issue, but necessary characteristic of this system. While most of the mainstream economy maintains that free markets and the invisible hand makes sure that everybody has a chance that with hard work and good market product gains a portion of wealth, in reality it is not the case. Rarely discussed, but probably the best evidence of the flaw of free-market dogma comes from the advanced statistics. Economic market models usually always assume that economy follows so-called Gaussian statistcs and associated normal distribution that guarantees that resources will be distributed fairly accross the whole phase space with continuous temporary fluctuations. However, the best models of the free-economy demonstrate different typology of the system and prove that Gaussian statistics cannot be applied for economic models. Actually, the characteristics of the free-economy system could be much better modelled by so-called Bose-Einstein statistics that necessarily as an end result leads to the collapse of the whole phase system in a limited number of points that suck in everything like black holes (effect of so-called Bose-Einstein condensation). However complex this explanation might sound, it is quite intuitive. It is clear that wealthy entities have more opportunities and more tools on their disposal which can allow them to acquire benefits over their less wealthy free-market competitors. Repeating the process over and over again leads to the concentration of wealth and dissapearence of the competition, the very effect that free-market advocates are fighting against!

Repeating the same patterns again will not produce different outcomes. Recently, a lot of hope was given to "blended finance" as a financial instrument that could revolutionize the development programes for developing countries. It's unclear how blending public funds or philantropy (that is distributing money achieved through extractive financal processes) with money provided through extractive financial investments can help in equitable and sustainable development of communities worldwide. As long as there is extractive component in it, finance stays extractive and cannot contribute to common good.

Losing our values and allowing that the system that does not work in our interest dictates almost every aspect of our life is terrifying. People feel that the economic and financial system does not work for them. They feel that it doesn't make them happy and does not improve their quality of life. How is that possible that the system that vast majority of people doesn't like is not contested in a much wider and systematic way? Part of the answer could be in systemic removal of viable alternatives from a public space at all levels. Universities do not teach about economy as something which is pure social construct. As something that was made by will of people and can be equally unmade or remade by the will of people. They teach it as a science with its laws equally strong as laws of nature - unchangable in stone written facts that can only be followed in the same way as the gravity is followed when we make a fall. We get experts, scientists, policy makers who are just parroting all the same dogma without questioning it. As financialisation spreads like a wildfire, the dogma is used to poison all sectors of human activity.

The challenge we're facing is probably the most difficult and at the same time the most important one in the world. We need to reclaim the language, the meaning of the words, we need to find ways how to spread the alternative narrative, how to reeducate billions of people that know nothing but following dogmatic scripts of today's economy and finance, wrapped into a cloth of science and expertise. We need to do this with just a tiniest fraction of resources that is used for the perpetuation of the system. It's mission impossible. But yet, we don't have alternative, because alternative is being unsustainable in the purest meaning of that word. Being unsustainabile means to die, to dissapear. And sustainability is serious thing,not something can be negotiated with. We cannot be 30% or 70% sustainable. We need to be 100% sustainable in order to survive as a race on this planet. And that's why our only choice is to win the fight for the economy which is in accordance with our values, which is non-extractive, sustainable, regenerative, fair and equitable. It's our only choice.

Finding a right approach to address the challange described is in itself very demanding task. Power relations projected through current financial system do not offer many spaces or opportunities to fight the dominant narrative. However, doing any kind of activity usually works better if we have right tools for that activity at our disposal.

With housing not being housing anymore, food not beind food, money not being money and banks not being banks, we need to build parallel concepts and parallel institutions that would return true meaning to the concepts crucial for our everyday's life.

In a financialised world that revolves around money, the approach that seems to make the most sense is trying to reclaim public ownership of money as a necessary precondition for any systemic change effort. Many projects of alternative monetary and currency systems have been attempted. In recent decade, technological advancement of distributed ledger systems and blockchain technologies opened a new hope that decentralized, people owned, monetary systems are feasible. However, all of those attempts either got co-opted by the mainstream financial system, either remained small, scattered and without capacity for systemic change.

Our premise was that the most viable solution for transformation is to design a transformative system of concepts, institutions and solutions that is fully compliant with current mainstream monetary and financial system, but is built on different values and leads to different outcomes. It seems to be the only viable way that can empower and enable masses to start using it, without falling out of their comfort zone of the false security that imagined predictivness of the mainstream system currently offers.

That's why in attempt to reclaim and redefine money, we decided to attempt to create the parallel system. But as for creation of anything in today's world, we need money, we decided to start from institutions created to manage money - banks. Banks are cornerstone of the current financial system. They have monopoly of keeping and leveraging financial assets of communities around the world.

We have designed a banking model which is fully compliant with today's regulations, Basel accords and supervisory models. We are hacking key elements of the banking model to enable processes that will redirect flows of the money and lead to creation of different economy. Key elements in this concept constitute of:

- ownership model

- governance model

• - credit policy

- risk assesment methodologies

• - authentic sustainability measurement

We decided to launch our banking model at European market. European union offers unique features justifying the decision to launch the first pilot bank on the European market. Firstly, European Union's banking sector is the most regulated in the world. Banks that are compliant with EU requirements will be with relatively minor adjustments be compliant with almost any banking regulations in the world. Secondly, EU's "bank passporting" directive allows bank licensed in any EU state to operate in all 27 member state countries as well as in 3 additional countries of European Economic Area, making it accessible to over 500 million people that live in those countries. No other banking license in the western world covers more people. Thirdly, EU is the wealthiest part of the world with extensive capital base, significant portion of which has been acquired through colonial past, making it the ideal place to launch the bank with strong wealth redistribution mission.

For a country of bank licensing, we chose Lithuania as a country that inpires to be the leader of financial innovation in Europe and the best track record in supporting new digital and technical solutions to come to the EU's market. Lithuania offers unique type of the license - specialised banking license - designed specifically for digital banks amd covering the whole spectrum of bank services except derivative trading and management of the pension funds. Banking license issued by Bank of Lithuania is in fact a license acknowledged by European Central Bank and in theory provides the same formal status as bank licensed issued by central bank of any other EU country.

Postulates on which we have built our banking model are as follows:

1. 1. bank needs to be built around universal humanistic values

2. 2. bank needs to function as a non-profit entity: a public service to the community, enabling community to use its own financial assets to achieve its collective goals

3. 3. bank needs to be owned by the community as it is the only logical that the bank belongs to people whose assets it manages

4. 4. bank needs to be governed as a cooperative / stewardship entity, enabling democratic governance and lock-in of collectively agreed values, mission and vision

5. 5. bank needs to use authentic sustainability measurement metric to measure success of its operations. This metric needs to be linked with Sustainable Development Goals (SDG's) as the main international binding document, defining non-financialised economic and social development goals

6. 6. bank needs to focus on provision of funding that creates new economic and social value

7. 7. bank needs to refrain of providing non-productive consumer debt

8. 8. bank needs to have risk assessment procedures that are taking into account environmental and social risks arising from the destruction of Earth's ecosystem and ripping of social fabric.

9. 9. bank's business model needs to be growth-agnostic, being able to function and be sustainable on a long term without pressure of mandatory economic growth

10. 10. bank model needs to be open-source, scalable and replicable

We have built up on the successful examples of existing ethical banks, banks with values, cooperative banks, community banks, public banks and development banks. They all do fantastic things in their communities, but as small, community-oriented banks, they don't have inclination to scale up and become influental on a systemic level. We have combined traditional community-bank values with state-of-the art technology, unique governance/ownership structure and innovative internal bank models to facilitate funding risks from the perspective of planetary sustainability and social justice.

European ethical bank (EEB) will utilize various strategies to demistify the concept of money and use it in its original meaning - a relationship of trust for the mutual exchange of goods and services ("I owe you"). One of the key tools that EEB plans to use systematically is the concept of endogenous money. Endogenous money is money issued on basis of trust between members of the community and without extractive properties designed for needs of "external" investors. Other complementary concept is concept of multilateral debt clearing - a process designed to lower the level of indebtness of the community and increase the liquidity of the funds in the community.

2. The design of money itself, in our belief, represents the single most important systemic question that can and should be raised within the sustainability discourse and local economic development. As localization has become a central strategic pillar of sustainable development, this raises an essential corollary: How can the principle of localization be translated into monetary design principles that reflect and reinforce local resilience, provisioning, and value circulation?

    Conversely, many persistent challenges of local economic development can be understood as consequences of inadequate monetary design. Our approach through the credit can address the following issues:

3. •       Low or stagnant monetary velocity within local economies (late payments problem);

   •       Capital outflows from productive local activities toward national and global financial markets;

   •       Municipal debt dependence and chronic liquidity shortages at the local level;

   •       Under-capitalization of small and medium enterprises (SMEs); and

   •       Weak local economic multipliers, resulting in fragile, externally dependent territorial economies.

EEB will function under the Bank-as-a-Service model in which central entity in Lithuania is managing the whole web of shared financial services (payments, cards, treasury, regulatory reporting, etc.). The model enables local community organisations to become cooperative co-owners of the EEB. At the same time, those organisations are also becoming implementation partners responsible for planning and managing the local investment portfolio of the bank in their communities in a most decentralized way possible. By this EEB keeps the values of community banking, but at the same time upgrades bank's capacities and allows execution of the projects on the systemic scale.

EEB will offer full transparency of its investments and will set the authentic sustainability measurement process ensuring that 100% of its funds are invested in projects that contribute to the sustainable economic transformation and the common good. EEB will ensure that its policy is in full accordance with humanistic values and will determine the minimum threshold that the project to be funded needs to fulfill in order to receive the funds. At the same time EEB will allow its customers to build their customer profiles in accordance with their individual, more specific values. EEB can guarantee that each customer's financial assets, bank invests in projects that are in line with customer's personal values.

We are designing and trying to implement this project for now almost 12 years. EEB has produced the full package of banking documentation (over 10.000 pages), detailing the bank's processes and procedures in line with its mission and vision. We're now at about 85% of bank licensing process and in need to demonstrate that there is demand for bank pursuing such an unusual business case as ours.

1. 1. Ownership / governance structure

2. Bank will be owned by Echoes Srl. Sociéta Benefit, Milan-based cooperative company to which community organisations representing communities will be becoming shareholders. Echoes Srl. SB will be the sole owner of the banking entity in Lithuania.

4. Keeping cooperative shareholder management issues separated from running banking operations seem to be a logical choice as shareholder/partner processes and issues are isolated from technical and operational banking ones that could be resolved by the management of the bank within clearly defined scope of their authority.

Running private, cooperative bank as a non-proft organization, similar to a public bank is necessary for the resolution of the problem of fiduciary duty. Fiduciary duty towards profit-oriented shareholders forces bank managers to make decisions that are favoring short-term profits over long-term created value for the communities. But, with owner of the EEB being citizens themselves, and non-profit character of the bank being explicitely declared, fiduciary duty towards non-profit seeking shareholders changes everything and allows implementation of the business models that are oriented to the creation of value and not maximisation of profits.

2. 2. Endogenous money funding - in collaboration with our partner Ecoloc, a non-profit organisation based in Basel, dedicated to developing Local Monetary Architecture for Local Transformation Design. Ecoloc has developed tools that are mapping money and value flows within communities and can simulate various community-development scenarios, based on credit and funding policies of the bank, ensuring that credit policy is designed to ensure the high-level of liquidity of the system. Ecoloc proposed the introduction of a redesigned monetary architecture that restores the social and ecological purpose of money and rebalances its role between the financial and real economies. Our starting point is the recognition that money is not a neutral medium. It is a social relation of credit and debt—a shared agreement based on trust and productive capacity. Historically, this was evident in early community credit systems where value circulated through mutual obligations rather than scarcity. Over time, the centralisation of monetary power—beginning with state coinage backed by rulers’ authority—transformed money into a store of value detached from its original community function as a medium of exchange. This shift entrenched extractive financial dynamics: money is hoarded rather than circulated, liquidity is drained from the productive economy, and small and medium enterprises struggle to access working capital.

   To reverse this imbalance, in our bank's internal accounting we are developing a dual-currency system that separates the two core functions of money. The Medium of Exchange (MoE) currency would serve local and regional real-economy transactions, while the Store of Value (SoV) currency would retain its role in savings and investment. A regulated exchange mechanism between the two would form a dynamic market boundary that discourages speculative raids on real-economy liquidity.

   This architecture can be complemented by:

   - local mutual credit or multilateral trade credit systems to support SMEs,

   • - the use of national fiat “pool money” tied to local ecosystems, and

   • - progressive exploration of an international energy-backed unit of account.

   Through this architecture, we aim to transform money from an extractive instrument into a collaborative technology—one that empowers communities, strengthens local resilience, and aligns financial flows with the transition to sustainability.

4. 3. Authentic sustainability measurement - we have actively participated in adoption and promotion of two sustainability measurement frameworks - Economy for Common Good movement / Common Good Matrix framework and Sustainable Development Perfomance Indicators (SDPI) developed by UNRISD. Common charateristic of both frameworks is that they are quantitative and can lead to comparable reuslts for various aspects of the sustainability. Ideally, over time, those frameworks should become part of the new global accountancy standard, required to switch alternative financial system to a new global mainstream system. Other common characteristic of chosen methods is that they are designed by triple-materiality philosophy, introducing concepts of thresholds and allocations in which all economic activities are evaluated on their impact on the natural resources in the geography in which

6. 4. Risk assessment - we have developed a new methodology for Value at Risk calculations that would allow us to include long-term environmental and social risks in bank's risk assessment. This methodology also allows for the valuation of intangible assets which are sometimes more valuable then classical banking assets.

7. 1. 5. Fintech platform - in collaboration with our tech partner Minka Inc. (www.minka.io), we have developed a tailor-made, flexible banking platform allowing us to implement business requirements in a very agile manner, without need on additional coding and software changes.

8. 6. We have built a network of initial community organisations that would allow implementation of EEB's funding services in their geographical contexts.

By successful implementation in Europe, EEB could become a global role-model of the last-mile, community-development banks that can have huge impact in the empowerment of local communities, especially in the developing countries, who would be able to manage and leverage their own assets in a non-extractive way therefore reducing need for charity and extractive external investments.