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The Credit Crisis and the Moral Responsibility of Professionals in Finance

  • Johan Graafland

    ()

  • Bert Ven

    ()

Starting from MacIntyre's virtue ethics, we investigate several codes of conduct of banks to identify the type of virtues that are needed to realize their mission. Based on this analysis, we define three core virtues: honesty, due care and accuracy. We compare and contrast these codes of conduct with the actual behavior of banks that led to the credit crisis and find that in some cases banks did not behave according to the moral standards they set themselves. However, notwithstanding these moral deficiencies, banks and the professionals working in them cannot be fully blamed for what they did, because the institutional context of the free market economy in which they operated left little room for them to live up to the core values lying at the basis of the codes of conduct. Given the neo-liberal free market system, innovative and risky strategies to enhance profits are considered desirable for the sake of shareholder's interests. A return to the core virtues in the financial sector will therefore only succeed if a renewed sense of responsibility in the sector is supported by institutional changes that allow banks to put their mission into practice.

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File URL: http://hdl.handle.net/10.1007/s10551-011-0883-0
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Article provided by Springer in its journal Journal of Business Ethics.

Volume (Year): 103 (2011)
Issue (Month): 4 (November)
Pages: 605-619

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Handle: RePEc:kap:jbuset:v:103:y:2011:i:4:p:605-619
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100281

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  1. Atif Mian & Amir Sufi, 2008. "Summary of "the consequences of mortgage credit expansion"," Proceedings 1074, Federal Reserve Bank of Chicago.
  2. J. Graafland, 2010. "Do Markets Crowd Out Virtues? An Aristotelian Framework," Journal of Business Ethics, Springer, vol. 91(1), pages 1-19, January.
  3. Hall, Peter A. & Soskice, David (ed.), 2001. "Varieties of Capitalism: The Institutional Foundations of Comparative Advantage," OUP Catalogue, Oxford University Press, number 9780199247752, March.
  4. Vasiliki Skreta & Laura Veldkamp, 2009. "Ratings Shopping and Asset Complexity: A Theory of Ratings Inflation," NBER Working Papers 14761, National Bureau of Economic Research, Inc.
  5. Bervas, A., 2006. "Market liquidity and its incorporation into risk management," Financial Stability Review, Banque de France, issue 8, pages 63-79, May.
  6. Beck, Thorsten & Levine, Ross & Levkov, Alexey, 2007. "Big bad banks ? the impact of U.S. branch deregulation on income distribution," Policy Research Working Paper Series 4330, The World Bank.
  7. Atif Mian & Amir Sufi, 2008. "The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis," NBER Working Papers 13936, National Bureau of Economic Research, Inc.
  8. Jayaratne, Jith & Strahan, Philip E, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 639-70, August.
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