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

Intangibility of Financial Products as an Ethical Problem 101
goods. The financial institutions and markets are therefore beset with a dual challenge:
as suppliers, they must fight the temptation to be beguiled by the inimitable
character and the abstract and impalpable quality of their business, and they must
resist the temptation to succumb to fictionalization and debordering of their own
business. Banks and finance brokers are ethically bound to ensure that the services
they offer are not merely fictive, or comprised of fictive elements. Whenever monetary
values are determined, any degree of discretionary judgment harbors the risk
that fictive values may come into play. Financial instruments and financial services
can become fictive. Objectivity must therefore be the basic mindset of all those who
work in the financial markets.
On the second point, banks and finance brokers act as trustees to their deposit
and investment customers Trust is ethically relevant because, by its very nature,
it cannot be replaced entirely by control. It contains an irreducible element of
self-commitment on the part of the individual assigned as trustee. Self-commitment
is the ethical relationship with oneself. Banks and finance brokers are therefore
subject, in a special way, to the demands of an ethics of the fiduciary relationship.
On the third point, the goods traded in the capital and credit market are not palpable
material goods but financial securities and financial rights deriving from them.
The impalpable and “immaterial” nature of financial instruments and securities rules
out simple empirical control of the quality of the traded goods. Hence, there is a constant
risk that the public will feel at the mercy of the power of the banks and financial
institutions because it is difficult to check their “products” even by taking a close
look. This often sparks irrational fears about the secret power of the banks, or even
“conspiracy theories” about the conduct of big banks and high finance. Transparency
is one of the main remedies to combat these fears. The other remedy is to establish
and then comply with a materially appropriate ethical code of conduct for financial
services.
The financial markets call for huge resources of ethical motivation and ethicsdriven
coordination. On the other hand, the abstract and impersonal character of this
industry hardly makes it easy to construct a personal and collective system of ethics,
and does not therefore reinforce ethical conduct by means of face-to-face control
between supplier and demander. Banks and professional financial intermediaries
must therefore pay special attention to making the ethical rules of conduct known
to their staff, and to ensuring that they comply.
Various applications of game theory to theories of social coordination 8 and ethical
economy 9 have shown how ethics, as a means of coordinating human actions,
falls foul of prisoner’s-dilemma-type situations. These are defined as situations
where it is in the shared interests of all members of the group if everyone complies
with the ethical and legal rules, but where each group member has an incentive
to break the rules for individual gain. Elaborations of this theory show that our
willingness to comply with rules or to break them is dependent on our expectations
8 Cf. AMARTYA SEN: “Isolation, Assurance, and the Social Rate of Discount”, Quarterly Journal
of Economics, 81(1967), pp. 112–124.
9 Cf. KOSLOWSKI (2001), pp. 17–37.