Banking crisis has moral root and solution, says Bishop of St Albans

Wednesday 14th November 2007

The Bishop of St Albans, the Rt Revd Christopher Herbert, speaking today (November 14 th) in the House of Lords, called for a fresh approach to restoring damaged trust in the banking industry. He called the giving of bank loans to people “..knowing that customers are not really aware of the risks they are taking,” a moral, not just an economic problem.

My Lords,

Over 2,700 years ago a poem of thund’rous beauty was written about economic affairs. The poet, looking around him, saw a land which was rich and prosperous: the vineyard was bearing much fruit. But then things began to go terribly wrong: greed began to prevail over justice, oppression was rife, mercy was no longer part of the social or political vocabulary. “Woe to you”, said the poet, “who join house to house, field to field, until there is room for no-one but you….”. He could have been describing the London property market or the banking industry. The poem is a long one but in it the relationship between social morality and economic affairs is examined with powerful precision.

 

In trying to understand our current economic problems, and in particular the banking crisis, I have read the newspapers fairly carefully and I have been much helped by articles such as the one by the noble Lord, Lord Rees Mogg in The Times this week (Monday 12 November). In that article he drew attention to some new regulations FAS 157 and 159: and explained that those regulations “will set the terms on which banks value their assets”. And then wrote, crisply and clearly: ‘No assets, no lending; no lending, no banks’. It’s a gem of a summary.

 

In the same newspaper on the same day, in an article about one of Britain’s major banks, the journalist quoted an “insider” as saying that his bank had: “always been at the transparent end of the spectrum”. The implication that other banks are not is easily drawn.

 

One of the things that has been missing from newspaper comment on the banking crisis has been any explicit reference to the morality upon which good banking practice is necessarily based. There has been the inevitable targeting of individuals from the Governor of the Bank of England to the CEO of Northern Rock – but that kind of targeted attack misses the much bigger issues concerned with the probity of institutions, about the moral relationship that exists between trust and risk and reward; about the moral accountability of those who have financial control over the most vulnerable; about the morality of a society in which the gap between rich and poor remains achingly large; about the morality of a housing market, left to its own devices, which leaves the poor and the young trapped in despair.

 

In a democratic society, banking depends upon trust. The unwritten, unspoken contract is that if I lend money to a bank I shall receive that money back in due course. If that moral trust is lacking or if faith is broken, the banking system will collapse.

 

The current failures in the system are as much to do with morality as with economic mechanics. If I over-lend or encourage indebtedness (what was that ho-ho phrase about the banks being “over-exuberant?”) knowing that my customers are not really aware of the risks they are taking then that is not a mechanical problem but a moral one. And no amount of arcane economic speak about CDO’s or selling debt or sub-prime lending can conceal the fact that the issue is a moral one.

 

It seems to me there is an urgent need for Her Majesty’s Government to take action at two levels: the first is to call together senior bankers with ethicists, philosophers and theologians to reflect on the moral values which should underline good banking practice, and the second is to take action, urgent and necessary action, to support those Citizens Advice Bureaux through the country where the problems of indebtedness are encountered on a daily basis amongst the poor, the lonely, and the most vulnerable. If my call does not produce any response I recommend a course in the reading of poetry – and especially the poetry of a man called Isaiah. It’s all there.

ends