Academic journal article ABA Banking Journal

Do We Really Need Ethics "Guidance"?

Academic journal article ABA Banking Journal

Do We Really Need Ethics "Guidance"?

Article excerpt

THE NEWS THAT FEDERAL REGULATORS are preparing to issue guidelines for assessing the "reputational risks" of commercial and investment banks came as a bit of a shock. For banks to have to rely on regulators to tell them the right thing to do makes no sense. Not only is it demeaning to the many bankers who know very well how to keep their noses clean and their banks' reputations intact, but it just sets up the regulators with one more thing to review and grade.

The forthcoming guidelines, which were first reported in the American Banker, have been in the works for some time. The newspaper wrote that the Senate "nudged federal regulators to distill the lessons executives should have learned"--ironic in itself.

From another source we learned that several large banks asked for such guidance to be drawn up. The guidance grows out of the questionable practices of some financial services players in the Enron situation and, more recently, the abuses uncovered in the mutual fund business.

Lessons learned from mistakes are always useful. And an outsider can sometimes see things more clearly. But for lessons to be learned, they need to be distilled by the people who made the mistake. To ask the regulators to tell banks, in effect, how to be ethical is an abrogation of responsibility. Regulatory guidance is not a lesson learned. It is only a "regulation to be." There are far too many rules already, which only tends to encourage legality and deter responsibility. Lessons learned, on the other hand, are far more beneficial, if heeded.

Economists talk about the salutary effects of unleashing the "animal spirits" of commerce--letting the competitive juices run freely (but not too freely) to the betterment of GDP, employment, and standard of living. …

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