Ethics Workstream

This post sets out in more depth the work that will be undertaken in this work stream.

The ethics work stream will employ methods of ethical analysis from philosophy to explore post-crisis obligations of institutions and individuals responsible for the financial crisis; in particular it will link such obligations to the ways in which such institutions and individuals can be held accountable for the crisis and its effects.

The basis for the analysis will consist of the following:

(a)    An agreed narrative or narratives of the financial crisis based on a literature review and interviews with participants in the financial sector, including the most commonly cited ingredients within the banking industry of the crisis, some of the associated regulatory failings, and excesses on the part of non-institutional borrowers, including “sub-prime” borrowers;

(b)   A list of purposes of banks and financial management norms for banks that seem to be agreed by UK policy makers, where failure to pursue those purposes or respect those norms provides prima facie grounds for criticism;

(c)    Ethical arguments for and against these purposes and norms, and a specification of departures from these purposes and norms by banks in (a). Insofar as those departures contributed to   the financial crisis, they will provide grounds for assigning accountability;

(d)   Principles connecting bank accountability with remedies for the costs incurred by governments and taxpayer as the result of the crisis. Some of the principles justifying bank obligations are analogous to “polluter pays” principles; others depend on the fact banks were rescued and what is owed to rescuers;

(e)   A discussion of the way in which, in view of the principles in (d), and the empirical research in the project, the banks and the government might alleviate the plight of the poor through creating or subsidizing financial inclusion institutions;

(f)     Taking into account the regulatory and taxation proposals in the project, ethical arguments for those proposals and ethical evaluation of proposals in UK policy documents.


Theories & Methods

A number of philosophical and quasi-philosophical theories will be exploited for ethical analysis: indirect utilitarianism, especially in relation to purposes of banks; stakeholder theory is relevant to obligations to those affected by “too-big-to-fail” bank operations; stakeholder theory and Friedmanite theory – that the sole corporate responsibility is to increase shareholder value – in relation to the propriety of government bail-outs of commercial enterprises in general and banks in particular; the literature on the Rawlsian “basic structure” in relation to whether banks are among the institutions required for the operation of equal opportunity; liberal justice theory in relation to how disproportionate personal wealth is associated with personal roles in financial institutions, and how the profits of banks and the income of those working for them should accordingly be treated by the taxation system.

Some of the ethical argument will be based on justifiable purposes of banks and accounting norms, as well as a non-trivial norm of intelligibility in financial products and services. Such a norm benefits not only people with low financial literacy, but professional risk analysts and bank regulators: the financial crisis was partly caused by the (even by the standards of financial specialists) esoteric nature of financial products and unadmitted incomprehension of the products and their risks by financial professionals.

The ethics research will also argue from the responsibility principles in (d) above that commercial bank support for financial inclusion of the relatively poor is obligatory, given that one of the effects of the financial crisis has been to shrink the safety net for the relatively poor provided by public spending in the UK and elsewhere.


Initial Conclusions

These different perspectives were amongst those that were brought together in an international philosophers’ workshop held in November 2012 as a first stage to developing the lines of argument set out above. The report of this workshop can be found here:

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