The Ethical Stance in Banking

Abstract Banks have a central role and importance in all commerce
and hence in all societies. This thesis investigates the ethical
basis of banking practice with the aim of developing an account of
the virtues appropriate to bankers and banking. One central issue
concerns a conflict between the interests of banks and their
customers, and how this conflict plays out in relation to the
lending policies and fee structure of banks. Such lending policies
can have a significant effect on banks, their customers and a range
of stakeholders. This research project investigated empirical
evidence through qualitative interviews with senior bankers in two
locations, Australia and Hong Kong, to elicit their thoughts on
banking areas that involve customer interaction, namely,
deposit-taking, credit cards, home mortgage loans, corporate
finance, and foreign exchange. The institutions selected hold a
substantial segment of banking business in their respective
countries and are thus representative of bankers’ perspectives. The
dissertation also entailed a case study of the causes and
consequences of the American sub-prime crisis that was precipitated
by the financial sector. The interviews revealed an assertion of
good ethical conduct based on adherence to peer-determined codes of
conduct and compliance with regulations. There was also a common
predisposition to claims of corporate social responsibility and
reputation preservation but these have tended to mask the powerful
underlying sales thrust. A key finding of the study points to a
lapse in ethical values in banks due to excessive reliance on
self-interest. Although self-interest is not in itself wrong, there
has been a lack of moderation vis-à-vis the interests of less
powerful customers. A related finding is a prevailing resistance to
regulation that is necessary to curtail selfish and irresponsible
behaviour by banks. The interview subjects prefer industry
self-regulation to government supervision. However, the banks in
Australia and Hong Kong, which have been subjected to tighter
regulation, have survived the global financial crisis better than
their American counterparts despite complaints about the severity
of their regulatory climate. There is a strong case to ascribe
ethical failure to American practices that triggered the sub-prime
calamities, which have devastated homeowners and the global
economy. American banks and regulators both operated on the
erroneous supposition that the quest after extreme profits would be
restrained by free market forces. The conclusions allude to virtues
that are necessary for banks to espouse moral conduct. These
virtues can be embedded through leadership and cultural change.