The Ethics of Banking: Conclusions from the Financial Crisis (Issues ...

Chapter 7
Interdependences Between the Financial
Markets for Credit, Capital, and Derivatives,
and the Challenges the Financial Markets
Pose for Ethics
Universal banks intermediate between savings and investments within their own
organizations, whereas in the capital market, investors find their own investment
opportunities in the market for corporate shares.
A Capital Market Within Banks in Bank-Controlled Industries:
The Corporatist Model
If the banks invest in industries on their own account, banks assume the investment
risk and finance the investment fully or partly with their deposit customers’ deposits.
They decide on their customers’ behalf where to invest their deposits and expose
them to risk. Banks form an internal capital market, comparable to the internal labor
market in any large industrial corporation. 1
The advantage of the internalization of the capital market in banks might be that
banks are highly professional investors and hence sometimes in a better position
to manage investments than the amateur stock-exchange speculator. On the other
hand, a shift of the external capital market into the bank’s internal capital market
turns banks into very powerful institutions. If sizeable parts of the capital market
are brought inside the internal capital market of the banks, it increases the potential
for concerted action between banks and industry. Comparisons between systems in
which the internal capital market of the banks plays a greater role than the external
capital market of the stock exchange show that in these economic systems, the banks
wield greater control over industry and are more powerful than in economic systems
with a strong stock-exchange-based capital market. But the process of consultation
and concerted action between banks and industry can also produce high rates of
growth in times of capital scarcity, as demonstrated by the historical examples of the
1 For the theory of the internal market in firms, cf. O. E. WILLIAMSON: “Firms and Markets”,
in: S. WEINTRAUB (ed.): Modern Economic Thought, Philadelphia (University of Pennsylvania
Press) 1977, andO.E.WILLIAMSON: “The Modern Corporation: Origins, Evolution, Attributes”,
Journal of Economic Literature,19(1981), pp. 1537–1570.
P. Koslowski, The Ethics of Banking, Issues in Business Ethics 30,
DOI 10.1007/978-94-007-0656-9_7, C○ Springer Science+Business Media B.V. 2011
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