Banks Can Use 'Code of Ethics' to Strengthen Public Trust
After enduring a slew of post-crisis scandals, bankers are beginning to see the light on becoming stewards of their organizations.January 6
Regulators are insisting that bank boards take responsibility for corporate culture. That's no cause for alarm, so long as directors are prepared to take ownership of the issue.September 8
Can banking self-impose and enforce ethical standards for bankers that may in turn help reverse negative public opinions about our industry? Drafting their own honor code, and having each employee and executive pledge annually to follow it in writing, could be a good first step.
Adhering to high ethical standards can be challenging in any industry. I’ve had my share of ethical dilemmas working as a Louisiana banking lobbyist since 1983. The fact is that everyone has moments in their personal and professional lives where a better path could have been taken.
Ethical shortcomings have tarnished the financial services sector, with the most publicized scandals at high-profile institutions on Wall Street prompting Federal Reserve Bank presidents in New York and Richmond, as well as Fed Chair Janet Yellen, to publicly address the need for better culture and ethical standards among certain large institutions.
More than seven years after the crisis, the prosecution of illegal behavior arising from the financial crisis has been nearly nonexistent. Since law enforcement is not taking steps to deter bad behavior, we in the industry can better focus on preventing bad behavior in the first place.
I believe that high ethical behavior is the norm in community banking as I see it on a daily basis. But public opinion about banks is still fairly negative. When bad behavior gets the attention of Federal Reserve Bank presidents and Janet Yellen it bleeds over to the detriment of all institutions.
That raises the stakes for all banks to speak up and promote ethical cultures. In general, banks need to communicate clearly to employees through the board of directors and senior executives that ethical behavior is a high priority. One way to do that is through a "code of ethics" document.
I recently came across a cease-and-desist order from the Securities and Exchange Commission involving a banker who had allegedly traded bank stock with insider information. The order included this statement: "Each year he read and signed an acknowledgement of a code of ethics, which, among other things, prohibited the use of confidential inside information for personal gain or benefit." (The SEC order is a public document.)
This was the first time I remember seeing a regulator use a bank’s ethics policy in this manner to highlight unacceptable behavior. It is refreshing and encouraging to see the practical application of a code signed by all of the bank’s personnel. An ethics code needs to mean something, and this is a good example of what happens when it is violated.
For banks, an advantage of developing an ethics code is that, unlike bank regulatory policy that must be adjusted constantly depending on the jurisdiction and interpretation, ethical standards are basically timeless. In fact, the Code of Ethics crafted by community bankers at the 1928 convention of the Louisiana Bankers Association is still relevant today. This code is one of the best summations that I have come across of what community banking is. It expresses values that apply to bankers regardless of the size of the institution. Although the language is somewhat antiquated, the code contains ideals that should be revisited regularly to remind us of the public trust instilled in banks every day.
None of us can escape the inevitable ethical dilemma. But having high expectations for your bank’s culture, and your own ethical behavior, is its own reward. It will also help restore public confidence in this profession.
Robert T. Taylor is chief executive of the Louisiana Bankers Association.