Ethical Aspects of Bank Resolution
7th edition (2019/2018)
Banks / Crisis
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To encumber other stakeholders besides shareholders and taxpayers with the absorption of bank losses has a strong ethical underpinning. A new legal instrument in the hands of supervisory bodies, known as resolution, will allow a fairer distribution of bank losses among various entities. At the same time, it raises new questions at the interface of finance, law, and ethics. It is therefore of fundamental importance to define the notion of “public interest” as a prerequisite for the initiation of a resolution action. This question needs to be addressed with reference to basic ethical standards. Otherwise, resolution will only be regarded as endorsing state aid to failing banks.
A bail-out too far
In the spring of 2013, riots that hit the streets of Nicosia, Cyprus, made the world aware of the need to revisit the concept of “privatising profits and socialising losses” which became notorious in the aftermath of the 2008-09 financial crisis. This method of functioning in the financial sector went much further than “just” the so-called real economy and affected the public finance systems of Ireland, Portugal, Italy, Spain, Greece, and Cyprus.