Bank employees are not more dishonest than employees in other industries. However, the business culture in the banking industry implicitly favors dishonest behavior, according to a new economic study.
A change in norms would thus be important in order to improve the battered image of the industry, Alain Cohn, postdoctoral scholar at the University of Chicago Booth School of Business, and Ernst Fehr and Michel André Maréchal, both of the University of Zurich, write in their paper, "Business Culture and Dishonesty in the Banking Industry," published in the journal Nature.
In the past years, there have often been cases of fraud in the banking industry, which have led to a considerable loss of image for banks. Are bank employees by nature less honest people? Or does the business culture in the banking sector favor dishonest behavior? These questions formed the basis for the study, which found that bank employees are in principle not more dishonest than their colleagues in other industries. The findings indicate, however, that the business culture in the banking sector implicitly favors dishonest behavior. The results suggest that the implementation of a healthy business culture is of great importance in order to restore trust in the banking industry.
Social norms that are implicitly more lenient toward dishonesty are problematic, because people's trust in bank employees' behavior is of great importance for the long-term stability of the financial services industry.
Cohn, who worked on the paper while he was a postdoctoral scholar at the University of Zurich and joined Chicago Booth's Center for Decision Research this fall, suggests concrete measures that could counteract the problem: "The banks could encourage honest behavior by changing the industry’s informal rules of behavior. Several experts and supervisory authorities suggest, for example, that bank employees should take a professional oath, similar to the Hippocratic Oath for physicians." If an oath like this were supported with a corresponding training program in ethics and appropriate financial incentives, this could lead bank employees to focus more strongly on the long-term, social effects of their behavior instead of concentrating on their own, short-term gains.
The scientists recruited approximately 200 bank employees, 128 from a large international bank and 80 from other banks. Each person was then randomly assigned to one of two experimental conditions. In the experimental group, the participants were reminded of their occupational role and the associated behavioral norms with appropriate questions. In contrast, the subjects in the control group were reminded of their non-occupational role in their leisure time and the associated norms. Subsequently, all participants completed a task that would allow them to increase their income by up to $200 if they behaved dishonestly. The result was that bank employees in the experimental group, where their occupational role in the banking sector was made salient, behaved significantly more dishonestly.
A very similar study was then conducted with employees from various other industries. In this case as well, either the employees' occupational roles or those associated with leisure time were activated. Unlike the bankers, however, the employees in these other industries were not more dishonest when reminded of their occupational role. "Our results suggest that the social norms in the banking sector tend to be more lenient towards dishonest behavior and thus contribute to the reputational loss in the industry," says Maréchal, professor for Experimental Economic Research at the University of Zurich.
Contact: Alain Cohn is available for further comment at Alain.Cohn@chicagobooth.edu.