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The Credit Crisis and the Moral Responsibility of Professionals in Finance

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  • Johan Graafland
  • Bert Ven

Abstract

Starting from MacIntyre's virtue ethics, we investigate several codes of conduct of banks to identify the type of virtues that are needed to realize their mission. Based on this analysis, we define three core virtues: honesty, due care and accuracy. We compare and contrast these codes of conduct with the actual behavior of banks that led to the credit crisis and find that in some cases banks did not behave according to the moral standards they set themselves. However, notwithstanding these moral deficiencies, banks and the professionals working in them cannot be fully blamed for what they did, because the institutional context of the free market economy in which they operated left little room for them to live up to the core values lying at the basis of the codes of conduct. Given the neo-liberal free market system, innovative and risky strategies to enhance profits are considered desirable for the sake of shareholder's interests. A return to the core virtues in the financial sector will therefore only succeed if a renewed sense of responsibility in the sector is supported by institutional changes that allow banks to put their mission into practice.
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Suggested Citation

  • Johan Graafland & Bert Ven, 2011. "The Credit Crisis and the Moral Responsibility of Professionals in Finance," Journal of Business Ethics, Springer, vol. 103(4), pages 605-619, November.
    • Handle: RePEc:kap:jbuset:v:103:y:2011:i:4:p:605-619
    DOI: 10.1007/s10551-011-0883-0
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    References listed on IDEAS

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    1. Atif Mian & Amir Sufi, 2008. "The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis," NBER Working Papers 13936, National Bureau of Economic Research, Inc.
    2. J. Graafland, 2010. "Do Markets Crowd Out Virtues? An Aristotelian Framework," Journal of Business Ethics, Springer, vol. 91(1), pages 1-19, January.
    3. Skreta, Vasiliki & Veldkamp, Laura, 2009. "Ratings shopping and asset complexity: A theory of ratings inflation," Journal of Monetary Economics, Elsevier, vol. 56(5), pages 678-695, July.
    4. Atif Mian & Amir Sufi, 2008. "Summary of \"the consequences of mortgage credit expansion\"," Proceedings 1074, Federal Reserve Bank of Chicago.
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    More about this item

    Keywords

    Anglo-Saxon capitalism; banking; credit crisis; financial ethics; MacIntyre; professional ethics; virtue ethics;
    All these keywords.

    JEL classification:

    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • B59 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Other
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • Z12 - Other Special Topics - - Cultural Economics - - - Religion

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