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

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Part I Foundations of Business and Finance Ethics A developed money, loan and capital market which supplies the economy with the financial resources that are necessary for economic transactions and economic growth is the hallmark of a high degree of economic development. Banks play a central role as financial intermediaries in the markets for money, credit, capital and derivatives. They broker the money supply, mediating in the money market between the central bank and the economy. They broker loans, mediating between the demand for credit and the supply of credit in the form of savings, and finally, they assume the function of the intermediary between industry’s demand for capital and listed bonds and the supply of capital that is made available by industry, the financial institutions and private individuals. Banks are therefore the brokers, the financial intermediaries, par excellence. The financial sector’s brokering or intermediary function has grown in recent decades. In the US economy in the year 2000, 7% of gross national product was spent on financial intermediation, more than twice as much as four decades earlier. 1 A modern national economy has a capital-output ratio of 1:3. That means that an increase in the efficiency of capital allocation by 2% creates an economic yield equivalent to a 6% rise in gross national product. 2 These figures give an indication of the significance of the financial sector in normal times. For the years following the 2008 financial crisis, however, they suggest that the misallocation of capital by the financial market crisis can be expected to have an equally severe negative multiplier effect, and a commensurately sizeable contraction of the real economy. In a universal banking system, the banks are not just the brokers of capital for investment but also the final arbiters on investments and the alternative options for investing capital as well as on the creditworthiness of their customers in the credit 1 L. H. SUMMERS: “International Financial Crises: Causes, Prevention, and Cures”, American Economic Review, 90 (2000), Issue 2, pp. 1–16. — Summers is the director of the National Economic Council of the United States (until the end of 2010). 2 Ibid., p. 2f. — The thesis of the enormous multiplier effect of finance has been doubted, e.g. in: ANDREW HALDANE,ADAIR TURNER,MARTIN WOLF: “What is the Contribution of the Financial Sector: Miracle or Mirage?”, in: The Future of Finance, LSE Report, 2010, downloadable at http:// harr123et.files.wordpress.com/2010/07/futureoffinance1.pdf.
2 Part I Foundations of Business and Finance Ethics market. They not only mediate between parties but constantly evaluate risks and creditworthiness. Moreover, banks operate as investors on their own account on the stock exchange, but also give advice to institutional and private investors on how they should invest their capital in the capital market. Their roles as valuers and judges in the credit market, and as investors and advisors to other investors in the capital market, make them highly influential factors in the economic process, whose influence extends far beyond their function as intermediaries between savings and investments. 3 3 Cf. also on finance ethics J. R. BOATRIGHT: Ethics in Finance, Malden, MA and Oxford (Blackwell) 1999 (Foundations of Business Ethics), and A. ARGANDOÑA (ed.): The Ethical Dimension of Financial Institutions and Markets, Berlin, New York, NY, Tokyo (Springer) 1995 (Studies in Economic Ethics and Philosophy, Vol. 7).
Page 2 and 3: THE ETHICS OF BANKING
Page 4 and 5: The Ethics of Banking Conclusions f
Page 6 and 7: Preface The crisis in the financial
Page 8 and 9: Introduction: Is the Finance Indust
Page 10 and 11: Introduction: Is the Finance Indust
Page 12 and 13: Contents Part I Foundations of Busi
Page 14 and 15: Contents xiii 6 The Ethical Economy
Page 16 and 17: Contents xv After the American Fina
Page 20 and 21: Chapter 1 Ethical Economy, Economic
Page 22 and 23: The Justification of Ethical Duties
Page 24 and 25: The Justification of Ethical Duties
Page 26 and 27: Business Ethics and the Fiduciary D
Page 32 and 33: Part II The Ethical Economy and Fin
Page 34 and 35: Chapter 2 The Ethical Economy of th
Page 36 and 37: Purpose and Task of the Credit Mark
Page 42 and 43: Duties of Banks Arising from the Na
Page 48 and 49: Chapter 3 The Ethical Economy of th
Page 50 and 51: The Globalization of the Capital Ma
Page 52 and 53: Values and Valuations in the Capita
Page 54 and 55: Which Values Should Determine the A
Page 56 and 57: On the Ethics of Financial Consulti
Page 58 and 59: Tasks of the Capital Market and Dut
Page 60 and 61: Tasks of the Capital Market and Dut
Page 62 and 63: Speculation and Finance Ethics 45 S
Page 64 and 65: The Functions of Speculation in the
Page 66 and 67: The Functions of Speculation in the
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Chapter 4 Insider Knowledge and Ins
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Insider Trading as Pseudo-Speculati
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Statutory Provisions Against Inside
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The Abuse of Insider Knowledge as a
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The Abuse of Insider Knowledge as a
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Ethical Duties of the Investor 67 a
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Ethical Duties of the Investor 69 a
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Chapter 5 The Ethical Economy of th
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The Finance Ethics of Hostile and F
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Mergers and Acquisitions 75 On the
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Corporate Governance by Consensus a
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Chapter 6 The Ethical Economy of th
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Futures and Options 85 They are str
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Variants of Derivatives 87 signific
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Variants of Derivatives 89 the law
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Variants of Derivatives 91 CDO synt
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Hedging and Speculation 93 insuranc
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Hedging and Speculation 95 average
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Chapter 7 Interdependences Between
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The Information and Influence Asymm
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Intangibility of Financial Products
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Intangibility of Financial Products
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Chapter 8 The “Banking Secret”,
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The Swiss “Banking Secret” 107
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Banking Secrecy, the Right to Priva
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Banking Secrecy, the Right to Priva
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Part III Financial Wagers, Hyper-Sp
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Chapter 9 Financial Wagers, Hyper-S
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Wager or Gambling: What Is Speculat
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The Principle of Shareholder Primac
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Chapter 10 Financial Overstretch: T
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Hyper-Incentivization and the Hubri
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Easy Credit and the Hubris of the C
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Easy Credit and the Hubris of the C
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Credit and Credo, Economic Success
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Credit and Credo, Economic Success
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The Financial Market Crisis as a Cr
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The Financial Market Crisis as a Cr
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From Big Bang Deregulation to Big B
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After the American Financial Overst
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After the American Financial Overst
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The Failure of Economics and Manage
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The Outsourcing of Asset Management
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The Outsourcing of Asset Management
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The Financial Crisis - Systems Cris
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The Way Out of Financial Crises 189
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References ALBERT,H.:Marktsoziologi
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References 199 CASPARI, K.-B.: “D
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References 201 HALDANE, A,A.TURNER
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References 203 KOSLOWSKI, P.: Ethik
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References 205 MESSNER,J.:Das Natur
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References 207 SCHMID, N.: “Insid
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References 209 WEBER, M.:Die Börse
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Name Index Note: Page numbers in it
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Name Index 213 N Naughton, M. J., 1
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