Banks matter even more

    The banking industry has a bad name. The collapse of Northern Rock in the United Kingdom in 2007 followed by the dramatic fall of Lehman Brothers in September 2008 which sparked the financial crisis and consequently the sovereign debt crisis of 2010 has dented the trust that people had in financial institutions in general. Besides the pure economics explanation to the crisis, there is a normative economics interpretation – it was all a matter of greed, dishonesty, lack of transparency and misplaced objectives.

    The Archbishop of Canterbury, Justin Welby (himself being a former oil trader familiar with investment banking and bankers), gave a keynote speech at an event “What kind of City do we want?” which was held at St Paul’s Cathedral, London on the 12th June of this year. His speech centred on the development of banking culture. We can talk of good banks, because the nature of banking depends on the people behind them. Archbishop Welby mentions human liberty – the liberty to decide and act in different ways. He quotes the parable of the Good Samaritan. Every person who passed by the poor victim of a highway robbery had a choice. Most of those passing by including a priest and a Levite did so with an attitude of indifference. But the wealthy Samaritan stopped to give help, placed the victim in a hotel and gave money to make sure that he is taken care of. The “Fear and Greed” of the casual passerby, was converted into “Gift and Gratuity” of the rich Samaritan.

    It is interesting that both Archbishop Welby and our Pope Francis are talking about our embracing of a counter-culture.  How can we convert greed, dishonesty and wrong purpose with value, virtue and right purpose? The raw anglo-saxon business ethic entirely focused on achieving the highest return on capital has contributed to a narrow-view of our purpose in life – making more profits for the sake of improving the shareholding price, and in the meantime getting a better performance bonus. Add to this the speed by which business life is moving today – I like the point that Archbishop Welby made here – “The Good Samaritan is now trading so fast with high frequency trading, moving so fast by car and plane, that she or he no longer sees the victim.” Profit is a necessity and not an end in itself.  In the masterpiece of “Caritas in Veritate”, Pope Benedict XVI states that Christian humanism can be the strongest contributor to development which is a result of the decisions and actions of “upright men and women… financiers and politicians…whose consciences are finely tuned to the requirements of the common good.”

    Archbishop Welby however also indicates the vulnerability of the human person with his or her fallibility, frailty and weakness. We can make mistakes, and the business community culture can derail us from the values of solidarity and the continuous search for the common good. The Chartered Institute for Securities and Investment, the body that accredits bank employees to work in the City in London, has now included tests that oblige candidates to consider ethical issues. It is a test in morality before going into the technical studies that will allow people to practice in the City. One of the questions that this on-line test asks candidates is reproduced here. I will conclude my contribution which is posed by this Test.

    You are chairman of an investment bank. The bank has a new product that offers an attractive return, but if the stock market fails, investors face large losses. The product is being launched and marketed by a third party; your bank’s involvement is not heavily publicised. Do you go ahead?

     

    Joseph FX Zahra

    Economist