Posted by on Sep 30, 2012 in Articles & Advice, Blog, Featured, Posts |

By Jason Zweig  | Sept. 27, 2012 12:30 pm ET

Image credit: Rembrandt, “Judas, Repentant, Returning the 30 Pieces of Silver” (1629), private collection, Wikimedia Commons


The British parliamentary commission investigating the Libor rate-fixing scandal and other banking misdeeds recently requested comments from the public on how to reform finance.

The comments were released last week. One of the most thought-provoking came from the Church of England.

In its submission to the committee, the church points out that banking is necessary for society to flourish, but that banks in recent years “have been championing a free market ideology whilst claiming exemption from its rigours” — leading the financial sector to violate “some of the fundamental principles of the free market economy,” including open competition, the freedom for banks to launch and fail, and “independence from external subsidy.”

Those violations of the principles of capitalism – combined with enormous bailouts and massive bonuses awarded for failure — have shattered the public’s trust in the integrity of bankers, says the statement from the church.

In response, the church’s statement says, the financial industry must look within and search its soul (if it has one — but we editorialize).

The church calls for two striking steps.

First, bankers should seek to build “a culture of the virtues” that would enable anyone working in finance to answer the question, “What would it mean to be a good banker?”

The financial crises and emerging scandals of recent years have…raised profound concern not simply about the ability of the system to prevent extreme and criminal behavior by individuals but about the system itself and a whole cadre of professionals within it. The question is not whether systems have been adequate to identify and deal with the bad apples but whether the whole orchard needs replanting.

Second, the financial industry needs to apologize and repent.

One insight from the Christian tradition of penitence and forgiveness is that is often not enough to put matters back to where they were before things went wrong; some demonstration of a change of heart by means of restitution and a visibly robust refusal to let the same failings occur again is necessary before a bad situation can be made good…. To achieve this is not just a matter of technical “fixes” but may require public, corporate contrition for past failings…and possibly some symbolic steps to assure the public that the corporate culture has changed.

Intrigued by these positions, we spoke this week with the Rev. Dr. Malcolm Brown, director of the Church of England’s Mission and Public Affairs Council, from his office in Church House, a stone’s throw from Westminster Abbey in London. A transcript of our interview, edited for brevity, follows.

Q: If reforming finance isn’t just a question of getting rid of a few bad apples but of replanting the whole orchard, how can that be done?

A: The point isn’t to get rid of everybody and start over. What you need to do is not simply weed out the identifiable wrongdoers but rethink the structure. In order to get good apples, you have to have a good orchard.

Whenever you have a conversation with institutions about how business is done, people find it very hard to move from personal morality to institutional morality. In the conduct of business, good people struggle to live by the virtues they say they personally believe in. That’s true in any business, but perhaps especially true in banking. You need to rethink how banking is done so that good people can flourish and good people can do good things.

Q: What would it mean to be a “good” banker, then?

A: [Laughs.] We deliberately didn’t complete the answer. We were trying in our submission to balance between making too-specific suggestions for change, on the one hand, and peddling vague platitudes on the other hand.

Q: But you must have some idea of what a “culture of the virtues” would look like in banking.

A: It wasn’t that long ago that bankers believed that their job was to help people manage their money. They went into banking to serve what we call the Common Good, and they believed that their activity should be judged on how it serves the good of the people.

Q: But Milton Friedman and many others have argued that the sole purpose of a corporation is to make money for its shareholders, which itself is an ethical goal.

A: The notion of the Common Good is a very strong strand in Christian thinking. The Common Good is why you have capitalism. Adam Smith recognized that society must be undergirded by strong moral views.

Q: Yes, despite his famous words about our getting our food not from the benevolence of the butcher and the baker but from “their own interest,” Smith didn’t believe that humans are inherently selfish.

A: Exactly. His Theory of Moral Sentiments makes Smith’s view very clear: that capitalism won’t achieve its ends without the things a moral sense can offer, and that if you discount your brother’s plight you’ve forgotten what capitalism is about. The structures of business and the mechanisms of capitalism need to recognize that, in the end, people need to be human to one another. To paraphrase Archbishop William Temple, self-interest prompts what justice demands.

Also, whilst Smith recognized that people aren’t entirely selfish, the church does believe that human sin is a reality that has to be taken account of. You can’t assume that altruism will prevail.

George Bernard Shaw said, “All professions are conspiracies against the laity,” but in banking that has come to an extreme. There still are professions where the practice of virtue hasn’t been completely obliterated. If you ask what it means to be a “good” or “virtuous” professional, people in many fields can still give you a ready answer. In banking, it is a baffling question.

A lot of manufacturers understand that their job is to produce a good product, not just a good profit. If that can be maintained in many other areas of business, why can’t it be sustained in banking?

Q: Can the principle of “My word is my bond” still work in a financial world in which transactions are electronic, anonymous and involve multiple parties?

A: Many people in the City [London’s financial center] believe that should still be the touchstone of their business, almost like the Hippocratic Oath. But the technology has made it very hard to embody it. How do you make your word your bond, how do you have loyalty to a customer who is a customer for only a few minutes? Instead, you get very strong peer-group bonding inside a bank: My word is my bond to my colleagues, but not to my customers.

We’re pointing to this gap without solving how to fill it. We would say to bankers: Do you realize how wide that gap is? If you go on letting it get wider, we’re all in deep trouble.

Q: What will it take for “a new and humbler style of leadership” to emerge among banks?

A: The self-realization that hubris goes down like a lead balloon among the public. The contempt for [bank CEOs] has been a gift to the comedians. There’s been this kind of public glee to see them suffer, because they have been so proud, such Masters of the Universe. [Investigations have revealed] evidence of the deeply competitive macho culture of banking, the obsession with status, the peacock-like behavior. The public rather like seeing the mighty fall down from their thrones. It’s not very Christian, of course.

For the leaders of banks, it’s in their own interest to be seen as listening to people’s concerns and as attuned to their interests. Hearing other people: That is the substance of humility.

Q: The church’s submission spoke of “penitence.” What did you have in mind?

A: The few apologies so far from people in the banking industry have had the tone of “If I have caused offense, then I apologize.” There’s a very great temptation just to say, “Things went wrong, we’ve put them back to where they were before, now you can forget that it went wrong, OK?” But it’s like shoplifting: Even if you put what you took back onto the shelf, you still did something wrong. Just restoring the status quo ante doesn’t give people the sense that trust has been restored. You can’t just put it back on the shelf; you have to admit that the way things were done was wrong.


Source:, Total Return blog,





Will We Ever Again Trust Wall Street?

Trust: Easy to Break, Hard to Repair

Dale T. Miller, “Disrespect and the Experience of Injustice

Definitions of BRIGHT LINE, COMPLIANCE, FINE and REGULATOR in The Devil’s Financial Dictionary