A culture beyond repair? The nexus between ethics and sanctions in finance

In the wake of the Great Financial Crisis and the attendant collapse of faith in market discipline, there has been a concerted attempt by regulators and state officials to address the perceived ethical deficit in banking. This chapter asks which form of approach has the best chance of success in encouraging bankers to act more responsibly. In particular, it discusses how law and regulation should be used to control socially excessive risk-taking, focusing on two key areas: the character of “excessive” and socially suboptimal risk-taking in finance, which is often obfuscated, and the extent to which individual liability should be used to remedy the consequences of excessive risk-taking. It critical evaluates a variety of other approaches to this problem, focusing in particular on calls for the industry to introduce professional banking codes, which it rejects as based on conceptual misapprehensions.