Photographer: David Levenson/Bloomberg
Banking

Shortfall in Bank Ethics Stretches to the Very Top

Even bankers say their employers are ethically challenged. That's a worry.

One of the inescapable conclusions of the economic crisis that engulfed the world a decade ago was that the culture of banking needed to change. Allowing finance to regulate itself ended in spectacular failure, underwritten by the taxes of the masses who didn't profit from the culture of risk-taking in those institutions. But the resignation this week of a British central banker, plus a survey by one of the bodies specifically established to promote higher standards of behavior, suggest there's still a long way to go in addressing the moral vacuum in finance.

Charlotte Hogg stepped down after less than a month as deputy governor for markets and banking at the Bank of England after revelations that she failed to declare her brother works as a director at Barclays Plc's investment bank.

There's no suggestion that Hogg, who was even spoken of as a potential future governor of the central bank, allowed her brother's position to influence any decisions she made in her existing role as chief operating officer, a position she'd held since 2013 and would have combined with her new role. But, as she acknowledged in her resignation letter, she mistakenly misled the Treasury Select Committee during her appointment vetting about whether she'd filled in the correct forms: "My involvement in drafting the policy made it incumbent on me to get all my own declarations absolutely right."

Given that the Bank of England regulates the U.K. banking industry, it's quite astonishing that Hogg didn’t report her brother's role, either when she was hired as COO or when she applied for her new job. She's right to resign; and the Treasury committee is right to have judged that her "professional competence falls short of the very high standards required."

Those standards, however, still seem to be missing in action in the industry as a whole. Two years ago, the U.K. banking industry established a body called the Banking Standards Board. Its first annual review, just published, makes for worrying reading.

The BSB surveyed more than 28,000 people working in finance in the U.K. Here's how they responded to a question about the potential friction between their actual work life and the values espoused by their employers:

A Troublesome Disconnect

In answer to the question: "There is no conflict between my organization's stated values and how we do business."

Source: Banking Standards Board

As the BSB points out, only 65 percent of staff see no conflict between values and how the firms conduct their business. Moreover, the report notes that the dissonance is "more marked in systemically important institutions."

Even more worrying is what the survey showed about the tension between career prospects and ethics:

12 percent see instances where unethical behavior is rewarded, 13 percent see it as difficult to get ahead in their careers without flexing their ethical standards, and 18 percent see people in their organization turn a blind eye to inappropriate behavior.

Almost a third of respondents feared "negative consequences for them if they raised concerns. So it's little wonder that a third also saw their fellow employees "trying to avoid taking responsibility for actions or decisions," with concern about "making mistakes" as a core reason:

A lack of clarity over roles and responsibilities, particularly (but not exclusively) in larger organizations, was also seen as an exacerbating factor, making it unclear where ultimate responsibility lay.

The world still hasn’t regained its trust in banking; a survey by Ipsos-Mori published last year showed just 37 percent of Brits trusted bankers to tell the truth, ranking 18th lowest out of 24 professions and lagging pollsters, lawyers and builders. 

Hogg has acted honorably in resigning from the Bank of England, acknowledging that "we, as public servants, should not merely meet but exceed the standards we expect of others." But her lapse in judgment in not recognizing what the Treasury committee immediately saw as a potential conflict of interest is worrying evidence that even at the very top of banking, ethical blindspots remain that are glaringly obvious to the rest of us.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Mark Gilbert at magilbert@bloomberg.net

    To contact the editor responsible for this story:
    Therese Raphael at traphael4@bloomberg.net

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