Ethical Bankers

by padraigcolman

This article appeared in the October 2013 edition of Echelon magazine.


Some people rob you with a six-gun/Others with a fountain pen.

Pretty Boy Floyd by Woody Guthrie

Cynics might comment that my title is an oxymoron or possibly an example of Cockney rhyming slang. I intend to examine here two specimen bankers in relation to the issue of ethics. I chose these two because they have been foolhardy enough to publish their thoughts on ethics.

The Origins of Virtue

I have been re-reading a book published in 1996 by Matt Ridley. What Ridley says about co-operation sounds reasonable. “Social contracts between equals, generalised reciprocity between individuals and between groups– these are at the heart of the most vital of all human achievements: the creation of society”.

Northern Rock and a Hard Place.

Ridley, a zoologist by training and a populariser of evolutionary biology, served on the board of directors of Northern Rock from 1994 and was Chairman from 2004 to 2007.  Northern Rock was a Newcastle-based building society that turned itself into a bank with disastrous consequences. On Ridley’s watch, Northern Rock experienced the first run on a British bank in 150 years. Ridley resigned and the bank was nationalised by the British government. The Commons Treasury Select Committee blamed the author of The Origins of Virtue for “damaging the good name of British banking”.


The Northern Rock saga is a good example of what is wrong with British financial services. Before 1997, Northern Rock was a building society. Building societies were first established in 18th century Birmingham, growing out of a network of clubs set up for  co-operation and the exchange of ideas as part of the movement known as the Midlands Enlightenment. Members paid a monthly subscription that was used to finance the building of houses for members, and the houses served as collateral. Building societies exemplified the concept of reciprocity that Ridley extols in his writing. The funds that building societies lent depended on deposits by savers.

Late in the 1980s, building societies started borrowing from the money markets and adopted aggressive lending policies. Because of mergers, some building societies became quite large. In the 1980s, new legislation allowed building societies to offer banking services. Ten UK building societies demutualised between 1989 and 2000, either becoming a bank or being acquired by a large bank. By 2008, every building society that floated on the stock market in the wave of demutualisations had either been sold to a conventional bank, or been nationalised.

When Northern Rock became a bank, it had assets of about $200 billion. It became the fifth-largest bank in Britain. However, retail deposits did not grow at the same rate as mortgage assets; the difference was made up with funding from the capital markets. Northern Rock did not merely follow the trend of high leverage; its debts were more than fifty times its shareholder common equity,

When the credit crisis hit in 2007, Northern Rock was unable to pay its creditors. In September 2007, the bank asked the Bank of England for help. Depositors panicked and huge queues formed outside branches as they tried to withdraw their savings.

The UK Financial Services Authority heavily fined the Deputy Chief Executive and the Managing Credit Director of Northern Rock for hiding the decline in mortgage assets. The 2006 annual report, published just before the collapse, painted a rosy picture. Ridley may not have known that this was deception but expressed little contrition. In a subsequent book, Rational Optimism: How Prosperity Evolves, he unrepentantly asserts, contrary to the facts, that the “concatenation of events” that hit Northern Rock was “unexpected and unpredictable”. In the book, Ridley attacks the “parasitic bureaucracy”, which stifles free enterprise and excoriates governments for, among other sins, bailing out big corporations. He asserts that, if regulations do not impede the market, everybody wins. The Commons select committee criticised Northern Rock for a “high-risk, reckless business strategy”. Northern Rock was able to pursue this strategy because of a “substantial failure of regulation” by the state. The outcome of this experiment was the first run on a British bank since 1878, and a £27bn government bailout.

Matt Ridley joined the House of Lords as Viscount Ridley in February 2013.

The Reverend Green

Another banker who has published books about his philosophy of life is Stephen Green (who happens to be an ordained minister of the Church of England) former Group Chairman of HSBC. In Good Value: Reflections on Money, Morality and an Uncertain World, he wrote: “As a matter of fact the ethics of the marketplace are almost by definition universal … Everyone knows about the importance of truth and honesty for a sustainable business.”

It was while the Anglican minister was running things that HSBC undertook criminal actions that led to a fine of $1.9 billion. Despite this, Green felt no shame in writing: “Underlying all these events is a question about the culture and ethics of the industry. It is as if, too often, people had given up asking whether something was the right thing to do, and focused only whether it was legal and complied with the rules. The industry needs to recover a sense of what is right and suitable as a key impulse for doing business.”

Bloomberg Markets magazine reported that HSBC was facilitating money laundering by drug dealers and state sponsors of terrorism. Green said at the time that: “This was a singular and wholly irresponsible attack on the bank’s international compliance procedures”. Subsequent investigations, however, confirmed that money laundering, mainly for the Sinaloa Cartel, did take place for several years throughout Green’s tenure. Green’s salary was well over 25 million pounds per year at the time.

He stepped down as Group Chairman of HSBC on 3 December 2010. He is now Baron Green of Hurstpierpoint and is the current Conservative Minister of State for Trade and Investment.


Let us leave the last word with Matthew White Ridley, 5th Viscount Ridley: “Trust is as vital a form of social capital as money is a form of actual capital”. Ridley asserts, “Trust, like money, can be lent and can be risked, hoarded or squandered. It pays dividends in the currency of more trust”.