European University Institute Library

Capital failure, rebuilding trust in financial services, edited by Nicholas Morris and David Vines

eng

Includes bibliographical references and index

illustrations

index present

non fiction

Capital failure

bibliography

995581950

edited by Nicholas Morris and David Vines

rebuilding trust in financial services

Adam Smith's 'invisible hand' relied on the self-interest of individuals to produce good outcomes. Economists' belief in efficient markets took this idea further by assuming that all individuals are selfish. This belief underpinned financial deregulation, and the theories on incentives and performance which supported it. However, although Adam Smith argued that although individuals may be self-interested, he argued that they also have other-regarding motivations, including a desire for the approbation of others. This book argues that the trust-intensive nature of financial services makes it essential to cultivate such other-regarding motivations, and it provides proposals on how this might be done. Trustworthiness in the financial services industry was eroded by deregulation and by the changes to industry structure which followed. Incentive structures encouraged managers to disguise risky products as yielding high returns, and regulation failed to curb this risk-taking, rent-seeking behaviour. The book makes a number of proposals for reforms of governance, and of legal and regulatory arrangements, to address these issues. The proposals seek to harness values and norms that would reinforce 'other-regarding' behaviour, so that the firms and individuals in the financial services act in a more trustworthy manner. Four requirements are identified which together might secure more strongly trustworthy behaviour: the definition of obligations, the identification of responsibilities, the creation of mechanisms which encourage trustworthiness, and the holding to account of those involved in an appropriate manner. Financial reforms at present lack sufficient focus on these requirements, and the book proposes a range of further actions for specific parts of the financial industry.--, Provided by Publisher

What Went Wrong? 1: Sue Jaffer, Nicholas Morris, and David Vines: Why Trustworthiness is Important 2: Sue Jaffer, Nicholas Morris, Edward Sawbridge, and David Vines: How Changes to the Financial Services Industry Eroded Trust 3: Thomas Noe and H. Peyton Young: The Limits to Compensation in the Financial Sector 4: Richard Davies: A Short History of Crisis and Reform 5: Sue Jaffer, Susana Knaudt, and Nicholas Morris: Failures of Regulation and Governance Trustworthiness, Motivations, and Accountability 6: Natalie Gold: Trustworthiness and Motivations 7: Avner Offer: Regard for Others 8: Onora O'Neill: Trust, Trustworthiness, and Accountability Problems with the Legal and Regulatory System 9: Joshua Getzler: Financial Crisis and the Decline of Fiduciary Law 10: Justin O'Brien: Professional Obligation, Ethical Awareness, and Capital Market Regulation 11: John Armour and Jeffrey Gordon: Systemic Harms and the Limits of Shareholder Value Crafting the Remedies 12: Boudewijn de Bruin: Ethics Management in Banking and Finance 13: Dan Awrey and David Kershaw: Toward a More Ethical Culture in Finance: Regulatory and Governance Strategies 14: Seumas Miller: Trust, Conflicts of Interest, and Fiduciary Duties 15: Avner Offer: A Warrant for Pain: Caveat Emptor vs. the Duty of Care in American Medicine, c. 1970-2010 16: Sue Jaffer, Nicholas Morris, and David Vines: Restoring Trust