Is there such a thing as morality in banking?

“Kill all the lawyers” isn’t a particularly new sentiment, but today it’s far more common to hear “kill all the bankers”.  Individuals, who one could argue once held a position of trust in our society, are now detested.  As it happens, most people who work in banks, while theoretically holding the title banker, had nothing to do with the global economic crisis, outside of perhaps overspending in a personal capacity.  The bankers on which we should focus are primarily those sitting on a trading floor.

Aside from identifying the right bankers, the bigger question we should ask is how did it transpire that these individuals weren’t aware of the damage they could possibly be inflicting on the world? Why is it that only with hindsight we know it was wrong?  Didn’t they know it was wrong deep down as well?  Had they thought about it in the right context, the answer is probably yes, but the trading floor culture didn’t train these individuals to think that way.  This is primarily because of how people are incentivized to take risk.  Among all the risks taken, probably the most damaging was reputational risk.  While everyone talked about it, it seems that reputational risk was approached along the lines of “if everyone else is doing it, it’s okay”.

Has banking always been this way?  While there are always people looking to take advantage when they can, the scale seems to have changed over the last decade.  To better understand the culture and the incentives on the trading floor that created this situation, read my new book How the Trading Floor Really Works.