International Finance Regulation: The Quest for Financial Stability

CHAPTER 16 Regulation and Ethics

The worship of the ancient golden calf has returned in a new and ruthless guise in the idolatry of money and the dictatorship of an impersonal economy lacking a truly human purpose.

—Pope Francis

The public is strongly expecting a moralization of finance and the establishment of ethical standards that would ensure proper behavior. Unfortunately, regulation cannot impose ethical behaviors; it can only impose rules to incite such behavior.

The “bankster” name given to the financial profession says it all on the perception of bankers by public opinion. It was the headline of the report by The Economist on the London interbank offered rate (LIBOR) crisis in July 2012.

“Since we have not more power of knowing the future than any other men, we have made many mistakes (who has not during the past five years?), but our mistakes have been errors of judgment and not of principle.” So reflected J. P. Morgan junior in 1933, in the middle of a financial crisis. Today's bankers can draw no such comfort from their behaviour. The attempts to rig LIBOR (the London inter-bank offered rate), a benchmark interest rate, not only betray a culture of casual dishonesty; they set the stage for lawsuits and more regulation right the way round the globe. This could well be global finance's “tobacco moment.”¹

It can, however, play a major role in the definition of accountability² as well as in the definition and implementation of accountability. The sources of such ...