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A moral compass for banking

Talking about best execution and stuff today, we got into a debate about whether banks were worried about trashing the trust of customers or were concerned about changing behaviours.

My response is that banks aren’t that bothered about trashing trust of retail customers as retail customers don’t make them money. The mass deposits of itsy-bitsy retail accountholders is just something they do to try to cross-sell profitable services, such as mortgages, credit cards, loans, insurances and more.

However, there is a view that the moral compass in banking has been lost and that banks might emerge in the 2010s to focus upon a moral ruleset for their services.

What’s a moral ruleset?

A set of agreements that are promises to customers, both commercial and retail.

The moral ruleset may say that we promise not to invest in A, B and C, where A, B and C represent things the bank finds morally reprehensible. That might be firms that supply arms to developing nations dictators, organisations that support animal vivisection or businesses that promote vices such as pornography, gambling and alcoholism.

These rulesets are published publicly and can be challenged for proof at any point.

This part is nothing new as banks such as Triodos in the Netherlands and Co-operative in the UK already operate such principle-based banking.

My point however is that, as the 2010s evolve and banks realise they have to establish some form of trust base, as retail customers are also commercial customers when they walk into their offices. Equally, there has been a call from some bankers, such as Stephen Green when he was Chairman of HSBC, to bring back a moral compass into banking.

So the idea is that the Triodos and Co-operative model becomes mainstream for all banks.

A moral code, ruleset and structure that is publicly aired, demonstrated and proven.

But it goes further than this as it forms part of a best execution program.

Best execution, in an equities trading context, means that the bank has a contract with the customer where they promise to trade an order in the fastest speed, lowest cost, best price and most likely expectation of settlement.

Under this new moral code, best execution would also include a caveat that the deals are processed within the customers’ moral code requirements.

If the customer wants a trade done without any organisation or business being involved that trades in armaments, defence, missiles or warfare, then they can add that to their moral code.

A bank must then be able to demonstrate to the customer that the individual’s moral code is being adhered to upon demand, and this could add a further layer of complexity but also trust to the business of banking.

Someone then asked me how the hell you could prove that? It sounds like a lawyer’s payday!

We considered this reaction for a minute or two, before several folks rebuffed the comment by claiming that banks will be naked and any breakage of moral code will be leaked.

Roll on wikileaks for bankers breaking their morals.


About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • Alexander de Lange

    A moral code and published ruleset for banks is likely a good idea. And certainly not for banks only!
    But: “the mass deposits of itsy-bitsy retail accountholders is just something they do to try to cross-sell profitable services”? Maybe not quite. Unless things have changed moer fundamentally then I’m aware, the itsy-bitsy bits still make up the cheapest funding portion of the bank!

  • Jacques Bayens

    Good news, Chris : the moral compass for banking has already been invented – by no less than Goldman Sachs, of course.
    It would be great if a ruleset could suddenly transform human nature, wouldn’t it ? In practice, the best we can hope for is probably some sort of promise that most of our deposits won’t be used directly for poisoning some distant nation’s water supply or storing our nuclear waste under their baby cribs – at least not until Goldman advises their governments 🙂

  • We have moved a long way from Caveat Emptor, indeed with Ombudspersons, Regulators, Consumer Codes, Consumer Champions and Consumer Programmes, it seems the consumer is spoilt for choice, However, the crisis also had its origins in financial immorality, that is unscrupulous borrowers who had little intent to repay the bank and who worked with intermediaries to “rip off” lending institutions. So lets be clear that morality is a two sided coin with full disclosure from both sides of the deal needed. The final question of who pays has been answered as we now know that where moral hazard is concerned, in the final analysis, we all do as taxpayers.

  • So there would be a ‘moral rule set’ that customers would demand of their bankers?
    An experienced and wise senior mentor once gave me instructive advice. He advised me to look for what individuals most demanded of others, especially on ethics and morals and especially in the workplace – these demands would tell you more about the shortcomings in those individuals on these matters of ethics and morals.
    In todays FT, Philip Stephens argues that the Government should come to ‘A pay-up and shut-up deal for the banks.’ In essence, he argues that the banks should make some sort of sizeable contribution on repayment of the massive subsidies they have received from the taxpayer. The quid pro quo would be that the Government would stop ‘whining’ about bonuses. Stephens then opinions that we then allow, “The bankers join the ranks of the footballers, rock stars and hedge fund managers.”
    In other words, the bankers are not actually doing anything that we would not do or normally complain about in others – it’s just that we don’t want them doing it with ‘our’ taxpayers’ money.
    Now that’s a perfectly legitimate and pragmatic stand, but it has nothing to do with much of what is underpinning the near moral panic that has arisen over bankers trustworthiness or morals or whatever.

  • Chris Skinner

    Thanks for all the comments.
    And yes, I fundamentally agree that there is a two way street in morals and ethics …
    … nevertheless, I sense that proving you deliver against customers’ criteria for being honest and transparent in meeting their needs, is the key requirement as we rebuild a new trust post-2008.