Wall Street culture encourages dishonest behavior, according to a new study by the University of Zurich.
The study, conducted by three members of the school’s economic department, found that people in the industry aren’t inherently dishonest, but the environment they operate in can easily create dishonest behavior.
In the years since the financial crisis, the industry has been battered by scandals involving fraud, insider trading, interest-rate rigging and more recently manipulation in the forex market, all of which have tarnished the image of banks around the world.
The study took more than 200 bank employees, 128 from a large international bank and 80 from other smaller banks. The group was divided into two, and the first group was reminded of their roles at work, while the second group — the control group — was reminded of their roles outside of work.
On average the bank employees had 11.5 years of experience and roughly half worked as private bankers, asset managers, traders or investment managers.
Each group was asked to complete a task that involved tossing a coin ten times and reporting the outcome online. Depending on whether it was ‘heads’ or ‘tails’ each group member could rack up $20 per toss.
The first group was found to report significantly more “wins” on their coin tosses than the control group. Similar studies were conducted with employees from other industries, but in those studies, neither group behaved dishonestly.
“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,” said Michel Maréchal, professor for experimental economic research at the University of Zurich.
The banking industry needs to change to prevent such behavior and ensure its long-term stability, according to the scientists that conducted the study.
They proposed that bank employees take a professional oath to help focus on long-term rather than short-term incentives. An oath coupled with appropriate ethics training and financial incentives could be effective in changing the culture, they said.
[by Sital S. Patel, writing for MARKETWATCH]
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