Conduct Capital Buffer

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The aim of this essay is to propose a regulatory instrument rewarding ethical behaviour in the banking sector.

It is divided into the following parts:

1. Rationale for a regulatory-driven incentive for banks to behave more ethically;
2. Key findings in literature about conduct and ethics in finance and how I define them in relation to banking;
3. Proposal of a measure to evaluate the conduct of banks;
4. Discussion of how to promote conduct effectively by regulatory stimulus;
5. Proposal of a Conduct Capital Buffer;
6. Brief discussion on credit risk related concerns of the Conduct Capital Buffer.

I mostly used the example of the Poland for illustration purposes while developing the concept of the Conduct Capital Buffer. The key findings and ideas seem to be universal in nature and should be applicable to most countries with a developed rule of law.

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