The Absence Of Values In The Credit Crunch Meltdown And Why They Are Really Needed

By | October 24, 2008

As the credit crunch unwinds and we can better see how much toxic debt resides where, the question comes to mind, how did these organisations values inform the behaviour and decisions of the relevant executives? Predaptive’s trawl of the publicly available data indicates that virtually all of the UK and US banks involved have at some time either spoken about or published material about their values (what they believe in and stand for) or their culture (the behavioural norms that inform their actions). This turn tends to be largely rhetoric rather than anything of real substance.

Let’s take a common term used – Integrity. How should integrity translate into practical action? You can’t talk for long about integrity without coming to trust, perhaps a bank’s most important asset. For a bank to jeopardise its trust with customers, commercial or retail, would be as crazy as a doctor making diagnoses for personal rather than patient gain, but that’s the equivalent of what the banks did.

They did not behave illegally (so we assume), and seemed to stay within regulatory boundaries, but not within any kind of meaningful values framework. What were the belief systems these banking executives were using to inform their strategy? Well, now we know. How to make the most short term money (with personal bonuses to match), by leveraging their capital base many times over. Like a drunken dancing, it only makes sense whilst you’re doing it, looking at it from any other context looks ridiculous and unsustainable. And when most of your peers are also doing it, affirmation that you look cool is easy to come by.

UK Savers made a simple assumption when they put their money into Icelandic banks. That all banks’ risk policies and governance procedures were the same, so savers put their money with the Icelandic banks simply because they offered the best rates. The banks weren’t working to a values framework and neither were the savers.

There has been a lot of speculation that ethical banking will do well post-crunch. Yet this ethical definition is usually taken to include their policies around environmental and exploitative practices. In the future it will be worth testing their values on a much broader basis connected to their fundamental way of doing business, caveat emptor indeed.

What this demonstrates is there is the market space to create a real competitive differentiation. To be a commercially focused, values driven organisation, by demonstrating the public rejection of certain types of lending and related financial instruments.

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