Until three years ago we lived in the ‘Great Moderation’. Macroeconomic outcomes were unusually good. It is true that the environment was helpful, with a surge of cheap imports from Asia. But macroeconomic policy, built around inflation-targeting regimes, was apparently also good. And microeconomic policy seemed good too: in particular, light-touch regulation of the financial sector seemed to be just what was needed. Then things fell apart. There are now a number of valuable narrative accounts of the crisis, and a theoretical analysis is beginning to emerge of why financial institutions took such enormous risks. Some reforms have been undertaken, and a theoretical analysis has also begun to emerge of how best to reform financial regulation. But if these reforms are to work, there may also need to be a change in professional conduct within the financial services industry. It seems that the crisis arose partly because financial institutions ceased to act in the interest of their clients. A doctor’s behaviour is constrained by the Hippocratic Oath. A lawyer works to bring about the best outcome for his client. A teacher has an obligation to provide training which is relevant for his or her pupils. Many have argued that those who work in the financial sector should be subject to a similar duty of care.
This project brought together a group of philosophers, lawyers, historians and economists in Oxford to discuss these behavioural aspects of the problems which still persist in the financial services industry (FSI), and which have been thrown into sharp relief by the recent global financial crisis. Their starting point was that attitudes, incentives and behaviour of functionaries in the FSI contributed to the problems the industry faced, and that these problems may not be adequately resolved by then-proposed regulatory or structural changes. Instead, there also needs to be a significant change in attitudes if problems are not to re-emerge. This project focused on the duty of care partly because this is an area of enquiry which has been insufficiently highlighted in the extensive debate and literature which has followed the global financial crisis (GFC). More specifically, the themes investigated included:
- why the financial system failed, and especially where this can be traced back to how bankers and other financial services professionals relate to their clients and customers;
- consequential changes to behavior, institutions, regulation, law and incentive structures etc which may assist in bringing the system back to a sustainable equilibrium;
- practical steps that might be taken to assist in necessary behavioural change.
In August 2014, the project lead to the publication of a book through Oxford University Press entitled Capital Failure: Rebuilding Trust in Financial Services. The Press Release is available here, while background notes from the editors are available here. Further, a sample chapter is available here, while summaries of the rest of the book chapters are available for download here.
You can now order a copy of the book from the publisher with a 30 percent discount by using this form.