(Peter Gumbel is an award-winning journalist and author who has lived in Paris since 2002. The opinions expressed are his own.)
By Peter Gumbel
Feb 13 (Reuters) - Lloyd Blankfein, the chief executive officer of Goldman Sachs, once famously said he believed banks were doing “God’s work.” Now, the Netherlands is going one step further: starting later this year, all 90,000 Dutch bankers will have to swear an oath that they’ll do their “utmost to maintain and promote confidence in the financial-services industry. So help me God.”
It’s part of a major attempt by regulators and banks to clean up after the financial crash of 2008, and put behind them scandals that continue to blacken the financial service industry’s reputation. Just last October, the big Dutch cooperative bank Rabobank paid a $1 billion fine to settle charges in the Libor rate-fixing scandal.
Board members of the banks have already been required to swear the oath since last year, but now it’s being expanded to cover everyone who works in the sector. It consists of eight statements, including promises not to abuse knowledge and “to know my responsibility towards society.” There’s also a new banking code, a special declaration of moral and ethical conduct that all board members are required to sign, a “treat your customer fairly” initiative, and a “suitability” test for executive and non-executive directors of supervisory boards.
Bankers who fundamentally object to invoking God’s name can instead pledge: “This I declare and promise.”
The Dutch Banking Association, which is behind the move, says it is still developing the disciplinary procedures and sanctions for bank staff who are found in breach of the pledge.
“The idea is to set the tone at the top,” says Robert Van Altena, a partner at KPMG in Amsterdam. “The banks themselves realised that they have to regain trust.”
That’s a tall order, and one that, at this point, may actually require some divine intervention to achieve. According to an annual survey conducted by consultant Ronald Pont, public trust in Dutch bankers has dropped from 92 percent in 2008 to 34 percent today. Pont, who himself used to work at Fortis, a financial services conglomerate that was nationalized by the government after 2008 and then broken up, says people used to be worried about banks failing; now they mistrust them because they seem to neglect customers’ needs.
So will swearing an oath make a difference? “It’s ridiculous,” says René Tissen, a professor at Nyenrode Business University in Breukelen, who jokes that the pledge should be referred to as “the Bernanke oath.” “People wonder whether bankers will ever adhere to it, in the light of the culture of self-enrichment. There’s a deep distrust, and it keeps coming to the surface.”
It’s easy to mock the initiative. Yet the Dutch have a point in identifying the fundamental problem. While there has been a slew of regulatory initiatives across Europe to shore up balance sheets - the latest being a new round of stress tests carried out by the European Central Bank - there has been little action aimed at curtailing the sort of “Wolf of Wall Street” attitudes that have been rife on trading floors and, at times, in executive suites.
The Dutch banks are following a long tradition of professionals swearing oaths. It was part of the ritual for “Masters” in craft guilds in the Middle Ages. The Hippocratic oath for doctors dates back to the 5th century BC. Lawyers have to swear them to be admitted to the bar. And over the past two decades, even if they haven’t had to evoke God, companies around the world have adopted codes of conduct. An entire industry focused on corporate social responsibility has sprung up, giving work to numerous consultants.
In that vein, requiring bankers to make a public ethical pledge is a step that some believe could help bring the financial sector back down to earth. Angus Tulloch, a managing partner at fund manager First State Investments, told members of the Scottish parliament this month that an oath of some sort is a good idea, because “the financial sector has become almost completely detached from the real world.”
The question is, of course, whether it can be effectively enforced. “Regulation of behaviour is a pretty big ambition,” says Ben Boyd, who heads the corporate practice division at Edelman, the New York-based global public relations company that publishes an annual trust barometer. Banks once again come out at the bottom of the heap in the 2014 survey. Boyd says what will change behaviour more anything are strong leadership and clear motivation, especially when it comes to compensation packages.
The Dutch are trying to ensure that their measures do have teeth. They can’t guarantee that offending bankers who have taken the oath will be struck by lightning bolts, but they have already put in place an array of sanctions for top executives, even as they decide on how to deal with less elevated bankers.
Take the new “suitability” rules for supervisory board members, which came into effect in 2012. They lay out a range of criteria, including the professional knowledge, experience and skills required of each board member; any previous disciplinary proceedings are a red flag. Last year the Dutch Central Bank and the Authority for the Financial Markets announced that nearly 10 percent of the supervisory board members of the four largest Dutch banks and insurance companies had failed these suitability tests, and were thus either released from the posts or prevented from accepting an appointment.
Would moral safeguards have prevented the 2008 meltdown? Probably not. The Netherlands was badly hit; as well as having to nationalise Fortis, the government injected capital into the biggest bank, ING, and insurer Aegon. A parliamentary inquiry into the rescue efforts in 2012 concluded that the government had made major mistakes in its handling of the crisis.
Professor Tissen says the only way to restore trust and avoid another meltdown is for banks to be split up. Above all, “people want transparency that’s easy to understand. They’ve turned against globalized finance. They want banks cut down in size,” he says.
Still, in a country with deep Protestant roots, a little God-fearing can’t do any harm. And, who knows, it may just do some good. (Peter Gumbel)