Does fining banks encourage more ethical banking?

Early philosophers were supposed to have asked: “how many angels can dance on the point of a needle?” If they did, it was certainly futile since nobody knew anything worth knowing about either angels or needles.

While we know how much banks have been fined in recent years, like the needle question we have no clarity about what is actually happening, in this case, the impact financial punishments are having on bank culture or ethical banking.

Nor are we entirely sure what it means to be an ethical bank today, let alone an ethical leader of a bank.

Take Deutsche Bank for example. It has suffered US and UK regulator fines of $2.5bn and EU fines of nearly one billion dollars. A three and half billion dollar fine (roughly £2.24 billion) is hardly a drop in the ocean, even for banking profits.

Yet while we know Deutsche bank’s fine is roughly six times that imposed on Barclays for similar offences, we remain unsure

  • How far those penalties are causing a change in the bank’s attitude to ethical banking
  • If its top brass are waking up to what it means to be ethical leaders
  • Whether the culture of the bank is subject to serious efforts to change it

The situation was recently summed up by William J. Baer, head of the US Justice Department’s William Baerantitrust unit

“Financial markets function properly only if customers and competing banks have confidence that they are untainted by fraud and collusion….the unprecedented size of the penalty demonstrates just how far from that bedrock principle Deutsche Bank and its traders strayed.”

The bank claims to have conducted the largest internal investigation in its history, apparently involving more than 21 million documents and over 300,000 audio files. It has also been forced by the regulators to fire seven workers, which should prove a wake up call for a few of its managers and traders.

But what of the bank’s culture? What of the necessary “tone at the top.” The bank’s most recent press release for example, is full of defensive statements such as: no one at the highest level of the organisation

 “…was found to have been involved in or aware of the trader misconduct.”

To followers of ethical banking and banking leadership, this translates as:

“Don’t blame us, it’s our traders’ fault!”

When faced with regulatory demands for information the delays and obstruction this bank employed speaks volumes. If the senior leadership did not know about these delays and did not sanction them, then either they were they asleep at the wheel or they went along with the illegal behaviour.

ethical bankingWhat’s an ethical bank?

So what do we mean by an ethical bank? How would we even recognise one if it existed? One thing’s for sure, ethical banking means a bank that retains the trust of the community in which it operates. Many though have clearly lost such trust in recent years, and they include Barclays, UBS, RBS, Robobank and Barclays.

Yet there are banks that can rightly claim the high moral ground, and expressly promote their ethical credentials as providing ethical banking.

For example, the well-respected Netherland’s Triodos bank, makes a particular virtue of its ethical stance—putting a special emphasis on environmental, social and cultural issues. Introducing its 2014 annual report, CEO Peter Blom, points to the bank’s strategic aim of being recognised by key influencers

“…as a reference point for values-based banking, contributing to the development of a more diversified, transparent and sustainable banking sector.”

Maybe that’s just PR spin. But the independent site Ethical Consumer rated the bank third highest for ethical banking in the UK out of nearly 50 other banks. The survey measured honesty, customer service, culture, and supporting the economy.

bank ethics chart

All this seems seems a long way from the seedy world of Deutsche Bank and the self-serving, half-hearted regrets from its ethically-challenged leaders.

Or consider the Handelsbanken Group. This has been chosen six years running as having the most satisfied customers in Britain as well as in other home markets, by EPSI, which produces an independent  performance satisfaction index,

The bank’s ethical guidelines and customer results also seem far removed from the murky world of Deutsche bank and many others on the receiving end of fines and reputation shredding activity.

That two of the most ethical sound banks are relatively small suggest one way forward to creating more ethical banking–break up the big banks into smaller entities. So far the regulators have shied away from such drastic action though some banks like HSBC have taken the plunge and are shrinking as fast as they can,

What’s an ethical bank leader?

According to recent research the chances of finding an honest banker remain fairly remote. A recent study by the University of Zurich for example, investigated whether the financial sector’s culture encourages dishonesty – and concluded that it does.

In 2009, the then chairman of HSBC Stephen Green put his whole philosophy of business including ethical banking on Stephen Green of HSBCthe record, in his book Good Value, sub-titled “Reflections on money, morality and an uncertain world”.

His book had a strong spiritual tone since he is also an ordained Church of England priest. Since then news about unacceptable tax practices at HSBC which occurred during his watch have rather tainted what might otherwise make him a candidate for the accolade of an ethical bank leader.

Barclays Antony Jenkins came close to claiming a halo of ethical propriety until he made the fatal fall from gracemistake of doing what bankers do best—paying his cohorts vast amounts of money in the face of falling profits and widespread public disgust.

What we’re missing is a credible rating system for individually named top bankers along the lines developed by the Ethical Consumer survey for entire banks.

It shouldn’t be that difficult to construct such a league table with a bit of imaginative research. For example, does the so-called ethical bank leader ever actually talk about ethics? Do they mention ethics in their annual report to shareholders, what are their personal credentials for encouraging sustainability, what unethical practices have been revealed during their recent watch and so on?

Such a comparison may not be as popularist as a sexist event like Miss World, but wouldn’t it be reassuring to know which bank leader actually deserves to be called ethical?

 

 

 

 

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