April 02, 2015
The Dutch Banker's Oath
Posted by David Zaring

How can we persuade bankers to follow the law?  Other regulators looks to a familiar calculus inspired by Holmes' "bad man."  You write regulations that are clear enough, and threatening enough, to induce obedience by someone who, left to their own devices, would do the things the law is meant to prohibit.  So you provide for treble damages for illegal combinations in restraint of trade, you beef up enforcement where detection is difficult, and so on.

But banking regulation is increasingly talking less about clear laws, more about broad principles, and also about "ethical banking."  The New York Fed President has brought the ethics question up, as has the Comptroller of the Currency.  And check out, via Justin Fox, this new oath that every Dutch banker must take:

I swear within the boundaries of the position that I hold in the banking sector

  • that I will perform my duties with integrity and care;
  • that I will carefully balance all the interests involved in the enterprise, namely those of customers, shareholders, employees and the society in which the bank operates;
  • that in this balancing, I will put the interests of the customer first;
  • that I will behave in accordance with the laws, regulations and codes of conduct that apply to me;
  • that I will keep the secrets entrusted to me;
  • that  I will make no misuse of my banking knowledge;
  • that I will be open and transparent, and am aware of my responsibility to society;
  • that I will endeavor to maintain and promote confidence in the banking system.

So truly help me God.

I'm unaware of other regulatory schemes do this sort of thing, though lawyers certainly have codes of conduct, and I suppose that accountants do as well.  What is it supposed to do?  Three possibilities:

  • Regulators think that ethical bankers are likely to be the traditional "boring bankers" who took less risks - and believe that talking to them about ethics and requiring oaths will induce this sort of weltanschauung.
  • Regulators don't know what to do to make banking safe, and so are delegating the safe banking question to the industry, at least in part, by lecturing them about ethics, and hoping that they'll devise practices in this light that will make banking safer
  • This is an effort, by regulators and bankers, to rehabilitate the reputation of the industry by proclaiming ethics commitments.

If you have views about the new role of ethics in banking regulation, let me know in the comments.

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