Blame banking, not banker - Link between finance industry & deceit: study

Nick Leeson, the derivatives trader who is blamed for the spectacular collapse of Barings Bank, the UK’s oldest investment bank, in 1995

New Delhi, Nov. 19: A team of economists in Switzerland has established a link between the banking profession and dishonesty — but bank employees are not on average more dishonest than other people.

The researchers at the University of Zurich have found that a significant proportion of bank employees become dishonest only when reminded of their occupational roles, suggesting that their compliance with honesty is undermined when their profession is salient.

Their study, described as the first to experimentally analyse whether the business culture in the banking industry implicitly tolerates or favours dishonest behaviour, also suggests that the social norms in the banking sector tend to be more lenient towards dishonesty.

“Our results suggest that banks should encourage honest behaviour by changing norms associated with their workers’ roles,” Michel Andre Marechal, a team member, told The Telegraph. “This will require actions from multiple angles.”

The findings, which will appear on Thursday in the journal Nature, imply that individuals who are fundamentally honest may behave differently if their professional identity is salient and the ethics of their occupation has been weakened.

“In experimental economics, this is the first study to establish a link between professional identity in the banking sector and dishonesty,” said Marie Claire Villeval, a senior economist at the University of Lyons, France, who was not part of the study.

Marechal and his colleagues performed a unique set of experiments designed to explore how the business culture in the banking industry views dishonest behaviour. They divided 128 bank employees from a large international bank who volunteered for the study into two groups — an experimental group and a control group — and asked them to toss coins after asking members of each group a distinct set of questions.

The control group was asked questions unrelated to their professions such as what they did in their leisure time while the experimental group was asked questions directly connected to their jobs, and thus intended to remind them of their professional identities.

Members of both the groups were then asked to toss a coin 10 times unobserved and report their outcomes, while being promised $20 for each toss, depending on whether they got heads or tails. Although the researchers could not detect individuals who cheated, they could detect dishonesty by comparing the reported fraction of the successful outcomes with the 50 per cent benchmark linked to honest reporting.

They found that the patterns of winning tosses reported by members of the control group followed a normal expected distribution. The proportion of winning tosses in this control group was 51.6 per cent.

But members of the experimental group — who had been reminded through questions that they are bank employees — reported 58 per cent winning tosses, indicating that some of them might have reported wins dishonestly.

The team then performed identical experiments on employees from various non-banking industries, and found that non-banking employees did not become more dishonest when reminded of their occupations.

“These findings confirm popular opinions about practices in the financial sector and they have direct implications: it is crucial to ensure a culture of honesty in this industry to restore trust in it,” Villeval wrote in a commentary on the study.

Several scandals and questionable financial practices involving banking in recent years have spawned perceptions that the industry tolerates dishonest behaviour. Some analysts have suggested that banks should ask their employees to adhere to standards of ethics — just as doctors are expected to do through the Hippocratic oath.

But Marechal said an oath alone was unlikely to be sufficient. While moral reminders may promote compliance with honesty norms, banks may also need to analyse work routines to find out where and when employees make critical decisions.

While the study was not specifically designed to investigate what aspect of the banking culture may trigger dishonest behaviour, Marechal said there was evidence that part of the effect they observed was due to a greater emphasis on materialistic values.

The researchers found that bank employees more strongly endorsed a statement that social status is primarily determined by financial success when reminded of their occupations. This endorsement was positively correlated with dishonest behaviour.