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

162 10 Disturbance of the Invisible Hand
to be successful in production coupled with modesty in personal consumption had
ceased to be the orientation of action.
Separating the Financial Services from the Value Creation
for the Customer: Self-Dealing of the Banks as Shady Dealings
The major banks that went into insolvency had hurt their customers by making total
losses on CDOs and certificates – for which clients had already incurred heavy costs
in the form of commissions and fees. In the case of the CDOs, the banks were also
discovered to have been engaging in forms of self-dealing, by acting vis-à-vis the
investor in the dual role of seller of securitized debts and broker of the transaction
via special-purpose vehicles. It has already been pointed out that transactions of
this kind cannot be classified as arbitrage but only as agiotage, pure pocketing of a
premium.
The same is true of the banks’ involvement in the execution of IPOs (initial public
offerings), where they act as adviser and trustee of the seller of the firm going to the
stock exchange, and as trustee to the buyer of these shares. The allocation of the
new shares is largely at the bank’s discretion, and remains anything but transparent
to outsiders. 23 It is striking that the IPO business, which was especially lucrative for
the investment banks and accounted for the bulk of their profits, is concentrated in
the hands of very few investment banks. The IPO business, because it is conducted
by a very select number of major banks, has a pronounced oligopolistic structure. 24
23 On IPOs, cf. THIELEMANN and ULRICH (2003), pp. 63–71.
24 Even the head of Deutsche Bank and the Swiss National Bank warn of the danger of a global
oligopoly of major banks. Ackermann sees the oligopoly as a consequence of the mergers brought
about by the financial crisis, whereas the view is taken here that it existed even before the financial
crisis. Cf. “Ackermann warnt vor einem Banken-Oligopol. Der Chef der Deutschen Bank macht
sich Gedanken über ein krisenfestes Bankensystem” [Ackerman warns of a banking oligopoly.
The CEO of Deutsche Bank contemplates a crisis-proof banking system], Frankfurter Allgemeine
Zeitung, 18 June 2009, No. 138, p. 13: “The Chairman of the Management Board of Deutsche
Bank, Josef Ackermann, has warned that the world’s major banks are forming ‘more and more
of an oligopoly’. This not only affects competition but increases the systemic risks. ‘After the
crisis there will be a few large banks slicing up the global cake – which gives rise to a danger
of oligopolistic structures.’ These are dangerous if they collapse. In the crisis, mergers of stricken
financial institutions are taking place, explained Ackermann. The result is increasing concentration
in the banking sector. ‘The question in future will be this: how big can banks be in relation to the
strength of the national economy, without becoming ‘too big to fail’ [...] The Americans say, if a
bank is too big to fail, then it is too big.’” (Own translation from the German).
Cf. also the Swiss National Bank’s call for the subdivision of the two major Swiss banks, UBS
and Credit Suisse: “‘Banken notfalls zerschlagen’. Forderung der Schweizerischen Nationalbank
überrascht” [‘Break up banks if need be’. Surprising demand from the Swiss National Bank],
Frankfurter Allgemeine Zeitung, 19 June 2009, No. 139, p. 13. “Break up” is not the appropriate
term to use for taking steps to split up an oligopoly.