A UBS investment banker and ‘man of his word’ is caught trying to bribe a broker. Taken from an incriminating email uncovered after the Libor-fixing scandal – when traders illegally manipulated London interest rates – the sentence illustrates a climate that has a global sector reeling.
Even before news of the scandal broke, PR giant Edelman’s annual Trust Barometer was reporting that public trust in banks had fallen off a cliff, concluding that banking is the “most distrusted global industry.”
People need money. Once they have it, they need to know it’s safe. So people need to trust banks, and banks need people to trust them. If that trust ebbs, the system becomes dangerously unstable. For two philosophers, the current lack of trust sits like a time bomb at the heart of global capitalism.
“One should start by distinguishing trust from trustworthiness. Trust isn’t always valuable, since it may be badly placed. It would be foolish and foolhardy to trust banks when they don’t merit it. Trustworthiness comes first,” said Alex Oliver, Professor of Philosophy at Cambridge. With Professor Boudewijn de Bruin from the University of Groningen, he is co-leading a €1 million, five-year project on Trusting Banks, funded by the Dutch Research Council.
“We are way beyond cheap PR exercises. If the public are to trust banks again, we must promote the key institutional virtues needed for banks to be trustworthy.”
The mid-1980s deregulations were based on the idea that banks have a strong, self-interested reason to behave scrupulously. If they do not, so the reasoning goes, they will be found out, their reputations will suffer and trust will be lost, leading to competitive disadvantage. But this market-based deterrent mechanism has comprehensively failed: witness Bernie Madoff’s Ponzi investment scheme – described as the largest financial fraud in US history – the manipulation of markets, money laundering, mis-selling of payment protection insurance and interest rate swaps, flawed credit ratings and the subprime mortgage crisis. Where will it end?
As those at the top of the sector continue to walk away from financial meltdown with personal fortunes intact, public anger at perceived injustice has mounted. Whether or not banks and their staff deserve this reputation, in the post-crash economic winter there are few, if any, professions and institutions as universally reviled.
For Oliver and De Bruin, this poses a very serious problem. If citizens and businesses distrust banks, they say, a chilling effect will spread as economies slow, unemployment rises and companies and countries go bust. It’s already happening.
“If you talk to bankers, many will blame the public for not trusting them, either for a lack of financial understanding, or for an unwarranted cynicism encouraged by hostile portrayals in the media,” said De Bruin, “but this is a defensive ‘blame the consumer’ strategy – a form of denial.
The decline in public trust tracks a decline in trustworthiness of the financial sector. Trustworthiness needs to be restored first. Trust will follow.”
In developing a theory of trust-worthiness for banks, Oliver and De Bruin will navigate the various conflicting interests inherent in financial relationships – between depositors and borrowers, between bankers and shareholders, and so on – and will chart the complex kinds of interactions needed for successful and trustworthy financial services. To be trustworthy, one must be both able and willing to perform the relevant actions. That is why the research will address key questions of competence and motivation, both of individuals and of organisations.
Oliver and De Bruin are working with a team of two postdoctoral researchers and two PhD students, as well as drawing on the expertise of colleagues in their departments. Using initial results, they designed a ‘Philosophy in Business’ course for the MBA programmes at Cambridge’s Judge Business School, and they have run tailor-made workshops with bankers, from trainees through to boards.
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Credit: The District
Reproduced courtesy of the University of Cambridge