Whenever I think of banks and bankers the words dishonest, greedy, liars and manipulative come to mind. The reason I have these opinions is because of the large number of scandals the banking and financial world has been involved in. A Yougov poll has found that a majority of people in the UK agree with me : over 60% of British people believe that banks are untrustworthy and 49% think that banks are dishonest. The article “Business culture and dishonesty in the banking industry” by Cohn further made me think of why people lack trust in the financial industry and whether banks have done anything to reduce dishonesty.
According to Falk and Szech, a major reason behind this perception is due to the business culture existing in the banking world. According to their research, bankers are dishonest only due to the importance of their professional identity in their work. Bankers will be able to reduce this tendency by creating a more honest environment. In my opinion this point of view makes sense when including biases such as conformity bias and group thinking. For example a banker may see benefits in cheating due to higher sales. The other employees will then have an incentive to follow suit as this helps drive up sales for the bank. eventually this turns into a banking scandal which may have significant impact on the economy ( especially if the bank is large and important). Therefore banks would see benefit in incentivizing their employees not to carry out fraudulent activities even if this creates better sales. The next two sections will analyze the Australian banking scandal which involves unethical activity by banks.
Australian banking scandal
The Australian banking scandal involved the fraudulent activities of 4 of the largest banks in the country which are the Commonwealth Bank (CBA), Australia and New Zealand banking group (ANZ), National Bank Australia (NBA) and Westpac. In 2015 a review was made by the government to check for any unethical activities made by banks during the 2008 Financial crisis. The findings were intended to change banking culture by enforcing the law, monitoring the management decisions and create competitive advantage. The findings found out that all 4 banks were participating in some version of unethical activity leading to banking collapse. For example, CBA would try to sell insurance to unemployed people even though they may not be able to pay back. Another example is ANZ which would sell 30 year old house loans to elderly pensioners. In overall the inquest found that the banks were involved in a range of illegal activies from money laundering of drugs to turning a blind eye to terror financing. These examples were found in the commission but only after 2 years of continuous investigation. The commission also showed that banks were willing to do anything to ensure continued revenue and profit growth. After the revelations of the findings, NAB chief executive officer tried to defend some of the banks activities, such as the fees-for-no-service, as being process issues instead of dishonesty. Regardless, the continuous greed of banks to create higher profits have made them into untrustworthy and dishonest institutions with a sole interest to make money. An interesting point is that a significant number of financial institutions also had very bad social responsibility such as a lack of environmental considerations in business transactions made. This may indicate a trend where banking dishonesty is tied into overall unethical activities by financial institutions.
In overall I believe that most financial institutions are involved in some form of dishonesty when profit is possible The only way in reducing this would be by creating incentives and monitoring the situation as shown by the Australian review. However, overall organizational culture needs to change to create a long lasting ethical environment and this will be discussed in the next blog!
Australian Banking Scandal. (2018, May 16). Applied Corporate Governance. retrieved from https://www.applied-corporate-governance.com/news-updates/australian-banking-scandal/
Public Trust in Banking: Special Report | YouGov. (n.d.). Yougov.Co.Uk. Retrieved from https://yougov.co.uk/topics/politics/articles-reports/2013/04/17/special-report-public-trust-banking
Cohn et al.(2014), “Business culture and dishonesty in the banking industry” retrieved from https://www.nature.com/articles/nature13977