World Economy Crisis – Ethics and the World Of Finance

World Economy Crisis – Ethics and the World Of Finance

‘Bankers more accountable to society’
Express News Service
First Published : 29 Aug 2009 09:56:53 AM IST
Last Updated : 29 Aug 2009 12:46:27 PM IST

ANANTAPUR: Reserve Bank of India (RBI) Governor Duvvuri Subba Rao today said there was no evidence to show that people in the financial sector were inherently less ethical than people in other professions. However, given the larger temptation and more opportunities, the power of context to be short, there could be greater incidence of unethical behaviour in the financial sector, he remarked.

Delivering the keynote address at the inaugural function of a two-day conference on ‘Ethics and World of Finance’ at Sri Sathya Sai University in Puttaparthi, Subba Rao said: “Because of the very nature of the financial sector, leaders and the top management in the sector have an extra obligation to be sensitive to larger societal obligations. Economics, as an academic discipline, is losing its value base, and conjectured, if that could be at the root of the malaise in the financial sector.”

In his indepth analysis of the present economic recession and the role of ethics, the RBI Governor outlined how a sense of responsibility to larger societal good underpins on the mandate of the RBI. “All of us as individuals, families, social communities and faith communities confront ethical dilemmas everyday, and we resolve them in our own ways. We take the value of ethical behaviour to be axiomatic,” he observed.

Subba Rao referred to financial scams that shocked the world and led to the collapse of markets, from Nick Leeson, Bernie Madoff, Dennis Levine to our own Satyam Ramalinga Raju.

On the RBI role, Subba Rao said the bank had a broad mandate. “We are the monetary authority, issue currency, regulate banks and non-bank finance companies and the financial markets. We regulate the payment and settlement system. We are the debt manager for the Central and State governments and the gatekeeper for the external sector. What guides us in fulfilling this broad mandate was a sense of institutional values and professional integrity. One of the core aims of monetary policy was to maintain price stability. By maintaining price stability, we are safeguarding the well- being of the poor in society,” he said.

In recent years, the RBI was concentrating on financial inclusion and financial literacy. The financial inclusion campaign was to provide access to financial services to people in remote and rural areas and poorer segments of society. The financial literacy programme was to educate people on the type of services that they could get from the financial sector, on the rights that they have and on the grievance redressal mechanism, the RBI Governor explained.

Earlier, Sri Sathya Sai Baba formally inaugurated the two-day conference. Former RBI governor YV Reddy, University Vice- Chancellor Viswanath Pandit and 24 chairmen and chief executives of commercial banks, insurance companies, regulatory authorities and a host of academicians and economists attended the conference.

Express Buzz Reference

RBI chief seeks more ethics from top brass
Mail Today
Mumbai, August 29, 2009

Drawing on the inherent difference between the financial sector, where trust is of utmost importance, and other businesses, the Reserve Bank of India (RBI) governor Duvvuri Subbarao said those running banks and financial institutions have a greater responsibility of being more ethical than those leading other businesses.

Speaking on ‘Ethics and the World of Finance’ at Sri Satya Sai University at Puttaparthi in Andhra Pradesh, Subbarao said, “The (sub-prime) crisis has exposed an issue of moral hazard in the banking system – something that has come to be called privatisation of profit and socialisation of costs.” He was referring to the bailout of failed banks with the help of public funds.

Subbarao said that if, say, a soap manufacturing company became an astounding success, the company’s shareholders and management would benefit. However, if it failed, the same people would lose.

“If banks make huge profits, they can reward themselves with generous pay packets and bonuses. And if loans sour and balance sheets crash, no worry, since the bank will be bailed out at the tax payers’ expense,” the governor added.

This is true regardless of whether a large segment of the banking sector is owned by the government as in India, or whether the banks are privately owned as in most other countries, Subbarao pointed out. Governments, regardless of their political affiliations, can hardly afford large institutions to fail. This ‘too big to fail’ syndrome enables financial institutions to take risks that, say a soap manufacturer, cannot take, the governor said.

India Today Reference