Jean Claude Trichet writes: \u00a0\u00a0Banks and banking rely on trust. But while trust takes years to establish, it can be squandered abruptly if a particular bank\u2019s ethics are weak, its values poor, and its behavior simply wrong.<\/p>\n
The events that triggered the 2008 global financial crisis, together with the subsequent scandals that have emerged \u2013 from the rigging of the London Interbank Offered Rate (Libor) to sanctions-busting and money-laundering \u2013 amount to a catalog of cultural failures within our financial institutions. Yes, extensive measures have been taken since the crisis to strengthen the financial system. But a profound weakness remains: To be blunt, it concerns the risk-taking culture that still prevails within some departments of global banks and in the financial system itself.<\/p>\n
We fail to start our examination of banks with definition of what a bank is. \u00a0A bank takes in other peoples’ money, which is why banks have to be regulated. \u00a0They hold and invest that money. \u00a0Earning 10-12 percent if considered reasonable. \u00a0Banks now try to earn %25 percent. They simply can’t do that legally.<\/p>\n
Too often, bank bosses\u2019 promises to change the \u201ccorporate culture\u201d and ensure their employees\u2019 good conduct have not been matched by fully effective implementation. In too many cases, banks are still failing to fulfill their obligations in serving their communities and the public at large.<\/p>\n
More regulation is not necessarily the best path forward: The rules and norms that define a \u201cright\u201d and \u201cwrong\u201d culture are beyond the wit of regulators and supervisory bodies \u00a0It is not enough to strengthen legal compliance. \u00a0Real change must go to the core of an institution\u2019s day-to-day operations. Banks must change compensation practices that reward excessive risk; protect whistleblowers; recruit and train staff to reflect proper ethics; and ensure that their boards of directors play a more active oversight role.<\/p>\n
Employees must understand instinctively what may be done and what should never be done. They must internalize a culture that values strict adherence to high ethical standards of conduct.<\/p>\n
Banking regulators and supervisors also have a decisive role to play. They need to work with boards and senior management to ensure that major reforms are implemented and then consistently applied. Regular exchanges of views between oversight officials and the banks should be regarded as a crucial component of this process.<\/p>\n
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