Transcript Banking and Ethics

Banking and Ethics
Wiesław Gumuła
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Thesis
• Commercial banks are exposed to a lot of
temptations to work in unethical ways. And some
of them do it.
• Small banks are more likely to act in an ethical
way than large ones.
• There are two types of commercial banks:
– conventional banks that tend to be ethical to some
extent: from being ethical to unethical.
– ethical banks.
• Each of them represents a distinct business
model.
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Ethical practices of banks
• Good customer services
• Proximity to customers
• Not engaging in illegal activities (e.g. laundering
dirty money, bribery)
• Checked origin of money
• Acceptable destination of money
• Transparency of operations
• Accountability
• Safe asset management
• Sustainable lending and investments
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The Double Nature of Banks
• The main goal of banks: to make a profit.
• Additional obligations that come from the
license of banking:
– to fulfill macro and micro-prudential regulations,
– to contribute to the safety of financial system,
– to be ethical.
• Some banks treat these obligations as goals of
secondary importance.
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Marketization of society
• One of issues of the evolution of the world
financial system at the beginning of the 21st
century. Financial crisis revealed the nature of
this process.
• The process of reduction of rich cultural
regulations to those market oriented.
• The destruction of the multidimensional culture
space.
• Banks are involved in this process.
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Three levels of culture
• Values and norms (cultural patterns)
• Normative roles, institutions and procedures
• Normative subsystems:
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Legal regulations
Ethical regulations
Customs and habits
Principles of effectiveness
Principles of efficiency
Technical indications and instructions
Esthetic rules
Religion
Wisdom
Felicitological values and patterns (How to be happy)
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The process of marketization of society
• Something more than marketization of
economy
• The multidimensional culture space reduced
to
– Legal regulations
– Principles of effectiveness
– Principles of efficiency
– Technical indications and instructions
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Examples of unethical practices
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„Shadow banking”
Bundles of products
Stopping giving services in the periods of fear
Moral hazard („too big to fail”)
Relational marketing versus unethical
consumption of social capital
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Example of ethical banking
• The movement of social banking.
• European Federation of Ethical and Alternative
Banks (FEBEA).
• Start in 2001.
• Mission: developing ethical and solidarity-based
finance.
• Memberships: banks, savings and loan
cooperatives, investment funds.
• Customers (about 500 000 in Europe).
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Ethical banks focus on:
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Safe bank management
Criteria and values for the use of money
Origin of money
Destination of money
Against exclusion
Transparency
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What differentiates ethical banks from
conventional banks
• Value oriented versus result oriented.
• Maximizing social capital and helping
customers versus maximizing financial capital.
• Ethical banks treat receiving profit as one of
the necessary conditions of existence and not
as a priority.
• To focus on a wide range of stakeholders
versus to focus on shareholders.
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Ethical banks
• Small commercial banks
• Saving and loan cooperatives
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Why are small banks more likely to act
in an ethical way than large ones?
• Breaches of ethics are more costly for
cooperative banks than for large banks (too
big to fail).
• Moral hazard.
• Moral cowardice.
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The nature of moral cowardice
• The moral cowardice is based on the readiness
to do evil (and the actual wrong-doing) while:
- you don’t do it personally and directly
- you do it with the hands of other people, through
the social system or financial and technological
tools (such as money, the Internet, and other
devices)
- you don’t experience negative effects of such
wrong-doing
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A moral coward
• A moral coward experiences a considerable
psychologial dissonance and discomfort when
he or she does evil himself or herself directly,
although he or she wants the wrong-doing to
take place. In some cases he or she is not
capbale of wrong-doing. Nonetheless, he or
she really wants it.
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Factors conducive to moral cowardice
• Psychological factors (are not the focus of this
presentation)
• Some types of professional roles (legal
representatives of corporate bodies or
individuals, plenipotentiaries)
• Social and cultural contexts (some types of
interpersonal space and culture)
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Why does the evolution of the world financial
system go hand in hand with the moral
cowardice?
• The evolution of the world finacial system is
among others the process of:
– transformation of direct and personal relations
between people to depersonalized and mediated
by many instruments (e.g. financial instruments
including money, the Internet, and
telecommunication services)
– transformation of reciprocal relations
(interactions) to one-direction bonds (without the
possibility of giving any feedback)
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The process of banking the world
• the increase in the number of bank accounts – transfer
from the cash to cashless society
• the rapid growth of non-cash payments (the popularity
of electronic money)
• switch from personal and direct contacts (which are
natural for cash operations) to indirect contacts (you
don’t see the face of your customer or business
partner while you use cashless forms of money)
• money accumulated in banks as „the weapons of mass
destruction” (in the hands of representatives and
plenipotentiaries)
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The process of financialization
• From banks to financial markets
• Banks made social relations less personal;
additionally financial markets make them less
secure and less predictable
• Financial markets build and promote onedirection relations (open pension funds, hedge
funds)
• the victims of wrong-doing find it difficult to
point out anyone concrete to blame (since
wrong-doers act under the cover of corporate
bodies)
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Moral cowardice culture as a result of
the society marketization
• making money as the dominant value (the myth of the
Midas’ touch)
• “greed is good and legal”
“No law forbids egoism.
No law forbids contempt.
No law forbids hatred.
No law forbids – isn’t it stupid – to be a bad man”
(Andre Compte-Sponville, 2012)
• Common agreement allowing so-called “lesser evil”
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How to fight against the unethical
banking
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Macro or micro-prudential supervision?
Resolution
Education
Internal ethical codes
Stigmatization (by INTERNET and other media)
Economic and social movements (social
banking, ethical banking)
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