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

Chapter 2
The Ethical Economy of the Credit Market
Banks are suppliers of payment-processing and lending services, and operate in
the market for these services, where they as suppliers meet the individuals as well
as firms which are the demanders and consumers of credit. Banking should be
described in terms of the market for credit and payment-processing services, and
not in terms of a quasi-state, official “credit-granting” function. Once upon a time,
the banking sector and the supply of loans were referred to in terms of quasi-state
administration and the granting of loans to applicants. During the recent decades of
credit expansion and easy money, credit – especially consumer credit and lending
for share purchases – has come to be seen as a type of consumer good that requires
no deeper ethical norm-setting than any other consumer good.
The financial crisis has shown both positions to be untenable. Credit is neither
a sovereign act of credit-granting, nor is it a consumer good like any other. Banks
and financial institutions must be mindful of the special character of their service
without lapsing into the mode of sovereign officialdom. An element of trust and
faith in the customer plays a far more significant part in the supply of credit than in
other markets. Hence, a purely commercial and profit-oriented interpretation of the
credit industry, which does not fully reflect its quasi-sovereign function of moneycreation
through lending, is found equally wanting. The bank also has to carry out
monitoring of the debtor’s continuing creditworthiness over the term of the loan,
and verify this within an ongoing bank-customer relationship. If it fails to do so or
attempts, as in the example of the collateralized debt obligations, to divest the duty
of monitoring to others, who in turn are not sufficiently able to perform this function,
the debtor-risk drifts about in the financial system, lacking the safe anchorage of an
enduring bank-debtor relationship and diligent monitoring.
Purpose and Task of the Credit Market
Given the economic association between the credit market and the capital market,
it seems advisable to define the banking system in terms of the market for
credit. According to the portfolio theory of investment, investors invest their savings
in investments in different risk classes with varying exposures to risk. Savers
P. Koslowski, The Ethics of Banking, Issues in Business Ethics 30,
DOI 10.1007/978-94-007-0656-9_2, C○ Springer Science+Business Media B.V. 2011
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