The Social Reform of Banking

Abstract

Recent developments in banking, including high-profile prosecutions for illegal activities, suggest further regulatory interventions on both sides of the Atlantic. Yet the structure of much banking regulation requires banks to make good faith determinations of the type of risks to which their loans give rise—determinations that can be and, in some cases have been, manipulated. Rather than evaluating specific regulatory interventions, this chapter will focus on the culture within financial institutions themselves, particularly the global entities that are explicitly or implicitly too big to fail, and on approaches to regulation that might affect and be affected by that culture. Our analysis is informed by the perspectives of anthropology, organizational and social psychology, and new governance regulatory theory.

The idea that there is something called ‘the economy’ that is separable from the welfare of society and its citizens is silly.

Prof. John Kay, Financial Times , 11 (May 30, 2012)

The economic power in the hands of the few persons who control a giant corporation is a tremendous force which can harm or benefit a multitude of individuals, affect whole districts, shift the currents of trade, bring ruin to one community and prosperity to another. The organizations which they control have passed far beyond the realm of private enterprise—they have become more nearly social institutions.

Adolf A. Berle, Jr. & Gardiner C. Means, The Modern Corporation and Private Property, 46 (Harcourt, Brace & World 1967; orig. 1932).