Società Italiana di Diritto ed Economia, SIDE - ISLE 2015 - 11TH ANNUAL CONFERENCE

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Banks and Integrity: How Justified is the Match? * Addressing the Corporate Governance of Banks From a Systemic Perspective
Andrea Minto

Last modified: 2015-12-15


In recent years the financial industry has been rocked by corporate scandals in which alleged misconduct and “unethical” behaviour by top- and middle-tier managers and directors have been common, widespread, phenomena. This observation holds particularly true for banks. Since 2007-8, in fact, banking has gone from being one of the public’s most trusted sectors to the least trusted, as a consequence of “serial-conduct-cases” which succeeded in shocking an already sceptical public. The rising scope and number of financial scandals indicate a need for a sharper focus on the systemic implication of misconduct events. Exceptionally high levels of conduct costs and reputational damages capable of compounding the “confidence crisis” caused financial regulators and supervisors around the world to seriously approach culture and integrity issues. Whether “cultural values” should be theoretically introduced, properly regulated and constantly supervised can be viewed, as a starting point for analysis, as a subset of the question of whether it is appropriate for regulators and supervisors to step in and address them in the first place, at the risk of an unduly interference in the decisions of banks as private undertakings. Building on the assumption that banks cannot be relied upon to spontaneously adopt an “integrity”- and “market stability”-oriented decision-making process, the article puts forward the reasons why regulators are entrusted with the mandate to address culture at banks. Insofar it is necessary to maintain the soundness and integrity of the market, thus, the institutional framework (i.e. regulatory and supervisory framework) should hold banks responsible for taking into account (“internalising” in the decision-making process) the systemic implications of an improper conduct (“externalities” or social costs related to misconduct) when making business decisions. To contain “spill-over” effects of misconduct, and deal with the fallout if they should materialise, regulators and supervisors must lay out and put in place macro-prudential frameworks integrating the purpose of the micro-prudential corporate governance measures.

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