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Why The Banking Industry Promotes Dishonest Behaviour

As the credit crunch unfolded, there was a great deal of discussion about just what had gone so drastically wrong. Was there a fundamental problem with the culture in banking that caused employees to behave so badly?

This was a topic analysed by a recent paper investigating the banking industry. In particular, they hoped to discover if there was something about bank employees that was inherently dishonest, or did the culture in the banks somehow encourage dishonest behaviour?

The study was undertaken by a team of researchers from the University of Zurich and has some significant implications for future policy regarding the industry.

The results reveal that bank employees are not, generally speaking, any more dishonest than colleagues from other industries. The banking culture, however, gets off much less lightly, with the report being damning of the industry and the pressure it places on employees to engage in dishonest behaviour.

Therefore, the report recommends that a root and branch overhaul of the culture in banking would be required before any changes in behaviour would be seen.

Why banking promotes unethical behaviour

The study divided participants into one of two groups. The first saw participants constantly reminded that they were bank employees, and they were reminded of the kind of behaviours expected of them in their roles by their environment at all times.

The second group, however, were primed to think more of themselves in a personal context, with their environment reinforcing this perception.

Each group was then asked to complete a simple task that would provide them with a boost to their income by a few hundred dollars, if they were to behave dishonestly. It transpired that those in the first group were much more likely to engage in dishonest behaviour, than their peers in the second group.

Comparison with other industries

To test whether this was normal, the researchers then repeated this experiment with employees from a range of other industries. Unlike in the banking experiment, however, there was no significant difference between those primed to think of themselves in a professional or personal context.

"Our results suggest that the social norms in the banking sector tend to be more lenient towards dishonest behavior and thus contribute to the reputational loss in the industry," the researchers suggest.

How to reboot the culture in banking

Suffice to say, when the norms in an industry default towards dishonesty, that’s a major problem. This is especially so in an industry where trust and reliability are so important to the vitality of the sector.

Alain Cohn from the University of Chicago suggests something akin to the Hippocratic Oath taken by doctors could be valuable.

"The banks could encourage honest behavior by changing the industry’s implicit social norms. Several experts and supervisory authorities suggest, for example, that bank employees should take a professional oath, similar to the Hippocratic Oath for physicians," he says.

He goes on to suggest that such a change would need to be supported by an extensive training program in the kind of ethical behaviours expected of employees.

Is that likely to happen? Your guess is as good as mine.


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