John R. Boatright Loyola University Chicago, USA

Trust and Integrity in Banking John R. Boatright Loyola University Chicago, USA ABSTRACT. No one disputes that trust and integrity are important in ba...
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Trust and Integrity in Banking John R. Boatright Loyola University Chicago, USA ABSTRACT. No one disputes that trust and integrity are important in banking, but it is more difficult to delineate clearly what trust and integrity mean with regard to banking and what role they play. Toward this end, I explain, first, how the distinctive features of banking, which differentiate this activity from other kinds of business, create a particular need for trust and integrity. Despite this need, however, I caution against placing too much reliance on morality or ethics as a means of ensuring the proper functioning of the banking system at the expense of other important factors, which include market forces, government regulation, and institutional design. Finally, I describe some of the implications for trust and integrity from the changed nature of modern banking, which I identify as the division of the value chain, the new business as usual, and the phenomenon of financialization. KEYWORDS. Trust, integrity, banking, regulation, institutional design, financialization

I. INTRODUCTION

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rust and integrity are highly valued moral goods, not only in banking but in business generally. Indeed, little commercial activity would be possible without them. Moreover, many scandals and crises, including the current financial collapse, are blamed on the lack of trust and integrity. In discussing these matters, however, it is all too easy to invoke pious platitudes about the need for trust and integrity in banking and to make earnest appeals for a restoration of these qualities. A more rigorous treatment of the subject, however, would address questions about what is morally required of bankers and why these requirements arise. Banking is

ETHICAL PERSPECTIVES 18, no. 4(2011): 473-489. © 2011 by European Centre for Ethics, K.U.Leuven. All rights reserved.

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different from other business activities in morally relevant ways, and so we must consider the distinctive roles that trust and integrity play in banking. In addressing such questions, we must deal with the fact that banking has changed significantly during the past few decades. The world of banking in the twenty-first century bears little resemblance to what it was, even as recently as 1980. As Laurence J. Kotlikoff observes in his book Jimmy Stewart Is Dead (2010), the kind of banking described in the classic movie It’s a Wonderful Life no longer exists. Kotlikoff suggests that a movie about banking today might be titled “It’s a Horrible Mess.” Even if this view is unnecessarily harsh, it is evident that modern banking has produced an unusually severe crisis and threatens to repeat its mistakes again and again. The failures in the banking system are not due solely to a loss of integrity and trust, and their restoration would not solve all the problems. However, trust and integrity are still important in modern baking. So I propose to examine what trust and integrity mean in this new world of banking and what role they play.

II. HOW BANKING IS DIFFERENT FROM OTHER BUSINESSES I begin by identifying some features of banking that make it different from other businesses and business activities. Although banks are businesses, their distinctive character is evident in many ways, including how they are chartered, governed, regulated, and operated. Being a banker is commonly considered a special role that invites admiration, as well as some suspicion and resentment. And the banking system is generally conceived as both a necessity for an economy and a danger to society. Indeed, Thomas Jefferson is said to have commented, that “banking establishments are more dangerous than standing armies.” What is it about banking that accounts for these differences from other business pursuits? One distinctive feature of banking results from its unusual status with respect to markets. In capitalist systems, markets are the main venue for economic activity; they are the arenas in which buyers and sellers exchange

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goods and firms engage in production. A key element of markets is the use of contracts as the chief device for executing discrete transactions. Contracts have the important moral property that they do not depend for their force on trusting the other party. With legally enforceable contracts, we can engage in exchanges or transactions with anonymous parties with the confidence that they will perform as expected. In the absence of a wellfunctioning legal system, however, with unreliable contract enforcement, trust becomes critical. Indeed, trust can be understood as an alternative to legally enforceable contracts as a means for engaging in market activity. That is, we must trust others in situations where reliable contracting is not feasible. The same point applies to the concept of fiduciary duty, which is of critical importance in banking. Fiduciary duty is explained, by some, as a device for filling gaps in incomplete contracts (see, for example, Hart 1993; Macey 1999). In corporate governance, for instance, an officer or director owes a fiduciary duty to shareholders but not to any other group. One explanation for this single-minded focus is that every other group participates in the productive activity of a firm by means of complete, legally enforceable contracts. Thus, employees, suppliers, and debt capital providers secure a return on their various inputs by using contracts that do not depend for their force on any duty that is imposed on the firm’s managers. These groups relate to a firm solely through a market. Shareholders, by contrast, cannot write complete contracts with the firm that specify in detail how officers and directors should behave. The solution to this difficult contracting problem is to impose a fiduciary duty that obliges management to use shareholder interest as the objective in all decision making. According to this view, imposing a fiduciary duty is a second-best solution to a problem of incomplete contracting. Traditional banking is conducted to some extent in a market through contracting, but banks are not market actors in the same way that a grocery store, for example, buys food from suppliers and sells it to customers in arm’s-length economic exchanges or transactions in a market. Nor does a bank resemble a manufacturer that purchases inputs in a market

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from suppliers, including labour and capital, and transforms them into an output in the form of a product that is sold to customers. What, then, do traditional banks do? Traditionally, banks served as intermediaries in fulfilling four critical functions in an economy: (i) payments, providing a means for transferring money from one party to another; (ii) savings, providing a means for people to safely place money that is not needed for current consumption; (iii) lending, making loans from savers’ deposits to customers in need of funds for consumption or investment purposes; and (iv) risk bearing and risk shifting. In particular, banks bear the risk involved in using savers’ deposits to make loans to borrowers and shift the risk from depositors to the bank’s shareholders. The service that banks provide in the payments system is largely a contractual fee-for-service business, although customers and recipients must trust that this service will be performed reliably and properly. Lending, too, is largely governed by contracts insofar as loan agreements specify the obligations of each party and, in particular, of the borrowers to repay the loan with interest. In the lending function, banks are the vulnerable party that must trust borrowers to repay, although the need for trust is reduced when a loan is secured by collateral and a legal right to foreclose is available. Trust is critical primarily in the relationship of savers or depositors and the bank to the extent that the money in question must be kept secure in the loan process and made readily available to be returned on demand. In this process, a bank serves as an intermediary between savers and borrowers, not only in facilitating the conversion of savings into loans but also in assuming the risks involved. These risks include the risk of default by the borrower and the risk of a bank run due to the maturity mismatch that results from lending savers’ short-term deposits to long-term borrowers. However, both of these risks are shifted away from the bank by deposit insurance, which reduces the need for trust in banks because a government not only insures depositors’ savings but also assumes a monitoring role. With deposit insurance, savers’ trust in government reduces the need to trust banks.

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The need for trust in banking can be understood by conducting a thought experiment similar to the question posed by Ronald Coase about firms (1937). He asked why all economic activity could not take place entirely in markets. That is, why do firms exist at all if markets are so effective? His famous answer was that firms economize on transaction costs. Similarly, we can ask whether all the functions of banking could be carried out in discrete market transactions. Why is contracting not sufficient to accomplish all the tasks of banks? One answer is that banking is a continuous activity in which customers and banks establish relationships that last over time rather than engaging in discrete, one-time transactions. Many aspects of these relationships cannot be specified in contracts but depend on trust. More significantly, banking is not a bilateral relationship between just two parties, but is a coordination activity among multiple parties. In theory, borrowers could approach a large number of savers and contract collectively with each one to borrow some of the funds needed. However, not only would the transaction costs of this activity be very high, but also two important benefits of banks could not be achieved. First, there is no way, even in theory, for the savers to loan money for a fixed period of time and also have it available for return on demand. Second, the savers could not loan the money without bearing the risk of default. Thus, banks serve an intermediation role that could not be achieved by contracting without them and, hence, without some degree of the trust that relationships, rather than transactions, require. A second distinctive feature of banking is that it does not merely provide services and products in a functioning economy; it is an essential component of an economy that enables it to function. The banking system has been compared to the heart in a body, which circulates blood throughout the body and thereby sustains life. Just as a body could not function without a heart, so an economy cannot function without a banking system. This reliance of an economy on a banking system has led some commentators to speak of banking as a utility. Mervyn King (2009), the Governor of the Bank of England, recently called for a separation of ‘utility banking’ and what he labelled ‘casino banking’.

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This utility aspect of banking creates another role for trust: to assure everyone that the essential services and products of the banking system will be maintained. We must trust bankers in the same way that we trust the leaders of basic utilities to keep the lights on and the water and gas flowing. However, unlike these utilities, which merely provide generic commodities, banks are privy to a great deal of sensitive information, which, in fact, gives rise to the importance in banking of duties related to confidentiality and privacy and the trust that these duties require.

III. WHY TRUST AND INTEGRITY ARE NOT ENOUGH I have offered in these remarks an account of why trust and integrity are essential to traditional banking for reasons that do not apply to conventional businesses. In this account, I have assumed that in a market with legally enforceable contracts there is little need for these moral goods, and that their need in banking is due to the non-market character of this activity. Of course, all markets require some degree of trust, and they flourish only with an abundance of it. Adam Smith argued that trust is necessary not only for economic exchanges to occur but also for the existence of property rights and capital formation, which are the building blocks of a market economy. Francis Fukuyama (1995) observes in his book Trust that trust is also essential for the development of social capital. Fukuyama admits that markets are possible without much trust, but he writes that “people who do not trust one another will end up cooperating only under a system of formal rules and regulations, which have to be negotiated, agreed to, litigated, and enforced” (1995, 27). All of these create high transaction costs. He further observes, “Widespread distrust in a society […] imposes a kind of tax on all forms of economic activity” (1995, 27-28). Despite these undeniable economic benefits of trust and integrity, I contend that they are not unalloyed goods that we should unreservedly emphasize and encourage, especially to the exclusion of more effective means to

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the same ends. Trust and integrity, as well as morality generally, have two crucial limitations. First, they are difficult and costly to inculcate. Extensive social resources must be expended to ensure that all individuals in society or an institution, such as a bank, are trustworthy and always act with integrity. These moral goods are part of social capital, which, as Fukuyama observes, is different from financial capital and human capital in that it cannot be created merely by financial investment; it can only be acquired, like the virtues, from “habituation to the moral norms of a community” (1995, 26). Fostering this habituation, no matter how desirable it is, requires a considerable commitment by society and its major institutions. Second, trust and integrity, along with morality generally, are unreliable. Trust can easily break down or prove illusory, and even people with integrity can sometimes act wrongly. If our goal is to ensure that banks and the banking system operate well, it would be prudent to examine all the means available for this purpose. What other means are available? In broad outlines, there are four major means for ensuring that banks operate well and fulfil their main functions. These are market forces, government regulation, institutional design, and ethics or morality. First, with respect to market forces, competition among banks for customers’ deposits and loan business provides banks with powerful incentives to assure these customers of their trustworthiness and integrity. Banks compete with each other over virtually every service they provide to the public and to corporate clients, not only on price and performance but also on reputation, as each bank seeks to enhance this intangible factor to achieve a competitive advantage. Ingo Walter (2010) has shown that the cost of a damaged reputation can be immense, and so banks have a strong incentive to manage reputational risk. Although the market for banking services is less than perfect due to increasing concentration of the industry, enough competition remains for the market to be a powerful disciplinary force. More generally, economists have demonstrated how perfect markets can solve many coordination problems, such as, in the case of Ronald Coase, the problem of social costs or externalities (1960). Indeed, the

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philosopher David Gauthier (1986) has argued in his book Morals by Agreement that in perfect markets, there would be no need for morality at all because all transactions would take place by mutual consent or agreement. Second, banks have long been subject to close government regulation, which is due not only to deposit insurance but also to the necessary role of government in the currency and credit systems. Unlike most businesses, where regulation serves mainly to protect the public, banking could not easily exist without close association with government. Third, economists, such as Douglass North, have explained the importance of the design of institutions in advancing economic development and channelling market activity (1990). Trust and integrity can be facilitated, for example, by the governance structure of banks (such as partnerships versus public ownership); by the separation of functions (such as commercial from investment banking, of banking from insurance, and mortgage origination from securitization); and by organizational features (such as the shielding of analysis from bank lending and the compensation and bonus structures). In banking, institutional design matters, and many problems can be solved by getting the design right. Finally, ethics or morality is a major factor in guiding and controlling human behaviour, which operates in banking and other economic activity not only by providing an internal motivation for right action but also by means of formal codes and compliance programmes. For example, an individual banker may be guided in making a right decision not only by a personal conception of right and wrong or an internal ‘moral compass’, but also by consulting a bank’s code of ethics, mission statement, or other policy documents. It is not my intention to minimize the role of ethics or morality in banking but to stress two points. One is that ethics or morality is not the only factor in guiding behaviour. Markets, government regulation, and institutional design are non-exclusive alternatives that should be combined with ethics or morality to form an effective deterrence and control system. The second point is that ethics or morality has limitations as a means of deterrence and control. As part of a complete

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system, it is difficult and costly to implement and is of uncertain reliability. President Ronald Reagan frequently said in connection with arms control and the Soviet Union, “Trust, but verify.” This phrase emphasized the point that trust alone is inadequate and is best combined with other means of assurance. Indeed, the best system might be one that does not require much trust at all. As a moral philosopher, I have a personal incentive to promote ethics as much as possible. However, I think it is important not to see a moral problem where none exists or to propose moral solutions where they are inappropriate. Sociologists use the word ‘moralization’ to denote the identifying or classifying of phenomena as moral in character or as having a moral dimension. Thus, to criticize the role of the mortgage origination process in the current financial crisis as the failure of a moral duty or obligation is to engage in moralization. In this example, I think that the mortgage originators who extended mortgages to unqualified borrowers acted wrongly, so that conceiving of this case in moral terms is wholly appropriate. About other possible examples in the current financial crisis, such as the securitization of mortgages, I am less sure. The challenge of moralization, then, is to use it properly by correctly identifying situations in which morality is involved and by correctly analyzing the exact nature of the moral elements or factors. A caution against moralization is provided by what has been called Hanlon’s razor: “Never attribute to malice that which can be adequately explained by stupidity.” To this, Douglas W. Hubbard has added: “Never attribute to malice or stupidity that which can be explained by moderately rational individuals following incentives in a complex system of interactions” (2009, 55). The challenge, then, in analyzing the role of trust and integrity in banking or the current financial crisis is to separate out the roles played by malice, stupidity, moderate rationality, and perverse incentives in a complex system of interactions. To correct the failings that arise in banking and our financial system generally, we need the opposite of these, namely virtue, wisdom, and better markets, regulation, and institutional design. Trust and integrity are included in virtue, although they are

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also a part of wisdom as understood by Aristotle in the form of phronesis or practical wisdom. We need bankers who are virtuous and practically wise, in Aristotle’s sense, but we also need better markets, regulation, and institutional design and an understanding of how all these elements should be balanced and fitted together.

IV. HOW CHANGES IN BANKING IMPACT TRUST AND INTEGRITY So far, I have made two main points. First, I have shown why trust and integrity are essential to traditional banking, and second, I have cautioned against placing too much stress on these moral elements in favour of a more comprehensive view of all the factors involved in assuring the success of traditional banking. I turn now to the fact that banking has changed significantly in the past few decades so that traditional banking no longer exists in the form it once did. If, as Kotlikoff says, Jimmy Stewart is dead, what are the implications of the changed nature of banking for our analysis of trust and integrity? Banking has been transformed recently by three interrelated developments. The first is that banking has experienced a division of the ‘value chain’, in which different banking functions are now being split up among many different special purpose institutions. Once banks had an effective monopoly as the main place for saving and lending, but today savers have many more options, most notably money market and mutual funds and personally-owned pension funds. With respect to lending, consumers can obtain automobile loans from special purpose finance companies, and business loans are readily available from specialized commercial lenders. The home mortgage market has become the province of separate companies which originate loans that are sold to arrangers, which, in turn, package them into securities for sale to investors around the world. Consequently, banks now hold a much reduced share of savers’ deposits and borrowers’ loans, with the lost business now being assumed by a wide variety of specialized financial institutions.

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Second, the banking industry has been increasingly consolidated by mergers and acquisitions (some forced by failures) into a small number of very large, comprehensive megabanks that offer all manner of services under one roof. Since some of these services are more profitable than others, the focus in these banks has shifted to the few services that are the most lucrative. In recent years, banks have relied for profits more and more on developing securities, such as collateralized debt obligations (CDOs) and specialized derivatives, and on trading for their own account, usually leveraging their capital by borrowing short-term to finance their large portfolios. As Simon Johnson and James Kwak observe in their book 13 Bankers: For Wall Street’s megabanks, business as usual now means inventing tradable, high-margin products, using their market power to capture fees based on trading volume; taking advantage of their privileged market position to place bets in their proprietary trading accounts; and borrowing as much money as possible (in part by engineering their way around capital requirements) to maximize their profits (2010, 193).

The third development is one commonly called ‘financialization’, in which finance has come to assume an increasingly important role in people’s lives as the major source of their well-being and security. In his Managed by the Markets: How Finance Re-Shaped America, Gerald F. Davis observes that people’s welfare, which was formerly secured by organizations, usually a corporate employer, is now sought in financial markets. He writes: As large corporations have lost their gravitational pull on the lives of their members, another orienting force has arisen: financial markets […]. The bonds between employees and firms have loosened, while the economic security of individuals is increasingly tied to the overall health of the stock market (2009, 3).

People not only depend more on finance for the sustenance of their lives but have had their thinking shaped by it to produce what Davis calls the ‘portfolio society’. Quoting further:

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As financial markets extended their reach beyond the corporate world, more aspects of social and political life were drawn into their rhythm […]. What emerged can be called a portfolio society, in which the investment idiom becomes a dominant way of understanding the individual’s place in society. Personality and talent become ‘human capital’, homes, families, and communities become ‘social capital’, and the guiding principles of finance spread by analogy far beyond their original application (2009, 6).

These three developments – the division of the ‘value chain’, the new ‘business as usual’, and financialization or the portfolio society – have significant implications for trust and integrity. First, financial activity has come to consist more and more of impersonal transactions among anonymous parties in complex systems. Banks still play a vital role in the system, but they are no longer vertically-integrated institutions that control every function in a long value chain. Rather, they carry out specialized roles in this chain. In this transition from relationships with banks to impersonal transactions among anonymous parties in complex systems, we have come to rely less on trust in individual institutions and more on trust in the system itself. Every financial institution has a duty or obligation not only to perform its specialized functions well and reliably, but also to maintain the trustworthiness and integrity of the whole system. However, in this system, trust and integrity as traditionally conceived play less of a role due to the impersonal character of the transactions. Banking is similar in this respect to air flight, which today depends as much on the guidance and control systems of the aviation industry as it does on the skill and judgment of individual pilots. In situations where trust is placed more in the whole system than in specific people or institutions, individual responsibility is not diminished; indeed, it is needed more than ever. However, the trust that we place in people and institutions extends beyond their performance of traditional banking functions and includes their responsibility to build and maintain the whole financial system. What is morally required from bankers today, then, is a sense of responsibility for the role that they and their own

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institutions play in the functioning of the larger financial system. I trust the banks I deal with to handle my payments and keep my money secure. That is, I trust them to carry out the traditional functions of banking. What I trust less is their awareness of their responsibility to build and maintain the integrity of the entire financial system and their commitment to fulfil this responsibility. Second, with the rise of megabanks engaged in the production of large volumes of complex securities and derivatives and in highly-leveraged proprietary trading comes considerable systemic risk. This risk is exacerbated by the implicit subsidy that large banks receive by being perceived as ‘too big to fail’ since investors believe, rightly or wrongly, that the government will come to their aid in the event of distress. The result is a substantial moral hazard problem. In addition to posing a systemic risk for society, which is exacerbated by moral hazard, banks are also engaging in a shifting of risks that they formerly assumed. For example, adjustable-rate mortgages shift some of the credit risk due to interest-rate fluctuations back to borrowers, and CDOs shift the entire risk of a loan portfolio from banks to the ultimate investors who purchase these securities. Credit default swaps shift the risk of loans from the holders to the firms issuing the swaps and, ultimately, to taxpayers if the issuing firms fail, as in the case of AIG. This risk shifting by banks is only a part of a much larger phenomenon of major institutions abandoning their traditional risk-bearing role, which is described by Jacob Hacker (2006) in his book The Great Risk Shift. In view of the systemic risk that too-big-to-fail megabanks pose, the responsibility of bankers now includes a careful evaluation of how their actions bear on systemic risk. Traditionally, bankers have considered only the specific risk that threatened the survival of their own institution and assumed that protection against systemic risk, if necessary, was the responsibility of government regulators. The underlying assumption was that concern over systemic risk was unnecessary because self-interest would prevent banks from taking risks that posed too great a threat even

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to their own survival. This assumption was shattered in the recent financial crisis, as witness the comments of Alan Greenspan in testimony before Congress: “Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity – myself especially – are in a state of shocked disbelief” (Andrews 2008). Given the falsity of this assumption about the power of self-interest to self-regulate, bankers have a responsibility to assess the contribution that their bank is making to systemic risk that affects the whole of society and not merely their own shareholders. Put starkly, we should be able to trust bankers not to destroy the whole economy. Since banks also play a valuable role in bearing risk and can have an impact on society by shifting risk to other parties, it is also incumbent on bankers to recognize their responsibility for the allocation of risk and to carefully assess what risks are assumed and shifted. Ideally, risks should be borne by the parties that can bear them most efficiently, and some recent risk shifting may be due to this search for efficiency. For example, securitization, which transfers the risk of loans from a bank to large investors, could, if done correctly, result in more efficient risk bearing. However, in the recent financial crisis, the default risk of loans packaged in CDOs was shifted to parties that did not understand the risks and consequently mispriced them. The standard assumption is that it is permissible to shift risk as long as the accepting party consents. Lloyd Blankfein, also in testimony before Congress, defended Goldman Sachs’s shorting of securities it had sold by saying that it was dealing with sophisticated, professional investors “who want this exposure” (Sorkin 2010). Apparently, the willingness of investors to buy securities, no matter how toxic they may be, absolves Goldman Sachs of any responsibility for losses. However, I maintain that this is an unacceptable position: we should be able to trust bankers to shift risks responsibly. Third, financialization or the ‘portfolio society’ creates a responsibility on the part of the financial services sector to provide products and services that truly fit people’s needs. This has always been true, but the

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responsibility has become more urgent if, as Davis claims, financial markets have replaced organizations as the main source of people’s welfare and security. With a fraying welfare safety net in Europe and the United States, people are looking more to the financial sector than to either employers or government for support. It is debatable whether banking has responded appropriately. Much financial innovation seems to be more focused on what makes profit for the banks’ shareholders than on the good of the people banks claim to be serving. The New York Times columnist and Princeton economics professor Paul Krugman has written that it is “hard to think of any major recent financial innovation that actually aided society, as opposed to being new, improved ways to blow bubbles, evade regulation and implement de facto Ponzi schemes” (2009). Paul Volckers, a revered former Federal Reserve Board chairman, has opined that the only useful recent financial innovation was the ATM machine (Hosking and Jagger 2009). If we now must trust bankers more to provide the products and services that are essential to our welfare and security, then they must earn that trust by taking greater responsibility for the implications of financialization or the ‘portfolio society’.

V. CONCLUSION In an effort to get beyond pious platitudes and earnest exhortations about trust and integrity in banking, I have endeavoured to explain how traditional banking is different from other businesses. First, since banking cannot be conducted solely by bilateral market contracting but serves an intermediation function between multiple parties, trust and integrity are requirements. Second, the utility character of banking also creates a need for trust due to the dependence of the economy on banking services. However, despite the need for trust and integrity in banking, I have also cautioned against placing too much reliance on morality or ethics as a means of ensuring the proper functioning of the banking system. In order

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to avoid the problem of moralization, we need to find a workable balance between market forces, government regulation, institutional design, and morality as means for controlling banking activity. Finally, I have attempted to describe some of the implications for trust and integrity arising from the changed nature of banking. Modern banking, as opposed to the traditional form, has been transformed by the division of the ‘value chain’, the new ‘business as usual’, and financialization or the emergence of the ‘portfolio society’. Each of these changes alters and expands the responsibilities of bankers in significant ways. In the United States, a suspicion of banking has existed from the time of its founding, and resentment over periodic banking crises continues to undermine trust. Many critics of modern banking warn that crises will continue unless drastic action is taken, especially with regard to the banks that are ‘too big to fail’. Opinion differs on what to do. Some, such as Joseph Stiglitz (2010), argue that the big banks should be broken up and their activities restricted; others, such as Mervyn King (2009), recommend separating utility and casino banking. This is echoed by the advocates of limited purpose banking, which is essentially a return to the banks depicted in It’s a Wonderful Life. The prevailing sentiment in the United States, so far, has been simply to impose more stringent regulation – 2300 pages of it in the Dodd-Frank Act! Whatever the outcome of this debate, it is evident that the challenge of restoring trust and integrity in banking is as difficult as it is necessary.

WORKS CITED Andrews, Edmund L. 2008. “Greenspan Concedes Error on Regulation.” New York Times, October 23. Coase, Ronald H. 1937. “The Nature of the Firm.” Economica N.S. 4: 386-405. Coase, Ronald H. 1960. “The Problem of Social Cost.” Journal of Law and Economics 3: 1-44. Davis, Gerald F. 2009. Managed by the Markets: How Finance Re-Shaped America. New York: Oxford University Press.

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