News Column

Is making bankers take an oath the best way to restore trust in the financial system?

July 30, 2014

YES Phillip Blond Rules-based approaches have dominated the regulatory response to the banking crisis. But more law does not produce better behaviour, and more regulation produces more complexity that'll be gamed by people determined to get round any limits on their conduct. The real cause of bad behaviour is a culture that permits it. Banking has to escape from the empty platitudes of standards and the rules they engender, to one where banks help form good character in their staff and produce and promote people who do not want to rip off their customers or engage in criminal conduct. An oath would play an important part in re-establishing boundaries and personal ethical responsibility. By itself it is insufficient, but if an oath were part of forming the whole industry as a profession, where it was linked to a licence to practice that was run by a new overarching body, then an oath would have the power to change the culture of modern banking.

Phillip Blond is director of ResPublica.

NO Mikko Arevuo The idea that we can restore consumer trust and confidence, or prevent the next crisis, by requiring bankers to swear an oath is excessively naive. Such a pledge trivialises the ethical issues that banks and their employees face in the real world. It gives a false sense of confidence that implies that expressing a few lines of moral platitudes will equip bankers to resist the temptations of short-term gain that can exist in financial services. Moreover, changing organisational culture is a long and ambiguous process. Bankers operate within tight regulatory frameworks; the quickest way to drive behavioural change is through regulatory interventions. Alternatively, banks should change compensation policies to focus on sustainable shareholder value creation rather than short-term gain, as well as enforce bonus claw-back clauses to limit reckless risk taking.

Mikko Arevuo is senior lecturer in strategic management at Regent's University London and an Adam Smith Institute fellow.

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Source: City A.M. (UK)

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