Taking on social responsibility as well in the financial sector

Published on Current Concerns, Interview with Professor Marc Chesney, Professor of Finance and Vice Director of the Institute of Banking and Finance at the University of Zurich, January 22, 2012.

… The appeal has been published in various countries. What has been the response to your appeal so far?

  • So far about 400 people have signed the appeal, mainly from Switzerland, but also from Germany, France, Austria, Spain, and Italy. Most of them are from the academic world, but not exclusively. Unfortunately, in the financial sector there are not many interested colleagues.   

Where do you see definite ways to create conditions for sustainable and ethically sound economic sciences oriented towards the common good? What needs to be changed?

  • The professors should critically analyze the content of teaching and the hypothesis of the models. After that, we should not use models that are not realistic but develop new ones. The doctrine should be adapted.
  • For example, the scientific research in finance did not consider enough what systemic risks the new financial products pose. We must show clearly that derivative products (such as options, or CDS, i.e. credit default swaps) do not only serve to cover the risk, but also create a system risk, as it has been shown since 2007. We also missed to explore, in how far trading outside the stock exchange, the non-transparent and unregulated so-called OTC transactions (OTC=Over the counter) or securitization, i.e. tradable credits, are dangerous for the stability of the economy. In this respect, the economic sciences also share the responsibility.

What measures do you propose with regard to the financial crisis?

  • OTC financial products should be prohibited in order to obtain more clarity and transparency. They are dangerous because they make the risk more diffuse and in most cases information about these products are not tangible.
  • Moreover, we should aim at a certification of financial products. We certify in the pharmaceutical industry, in the food or the auto industry. That means we should create a national and/or international organization for financial services, too, which can analyze these products to see whether they generate systemic risks or not, that is whether they are permissible and will be allowed or not. The financial crisis has shown us that financial products that create systemic risks are dangerous for the real economy and for our society.

In the appeal you address the issue of interdisciplinary cooperation. Where do you notice shortcomings and where some potential for a meaningful development of the financial industry?

  • As we have already written in the appeal, professors, teachers and researchers are carriers of trust in the society that has imposed on them the duty to serve by constantly searching for a better understanding of the real world and through sharing their knowledge. In order to serve the society and the real economy, debates behind closed doors among specialists, who all follow the same pattern, prove to be problematic. We need more diversity and interdisciplinarity, among others with the fields of ethics, philosophy, anthropology, for example.

You talk about the responsibility for society. What tasks do you see in the training of future financial experts and economists?

  • At the universities we train future leaders, so we have a responsibility towards society. Students should understand that finance is not just a technical field, but has other dimensions still. If we stay on a purely technical level in training, we risk to train more Jérôme Kerviels (he had bestowed the bank Société Génerale in 2008 with the highest loss in its history of 4.9 billion with fraudulent speculations in options) or Kweko Adobolis (the UBS broker, who had piled up a loss of around two billion dollars in the “equities” department in London).
  • It is about connecting the financial to the ethical dimensions in our professional discipline. Those who handle securities have a responsibility beyond the company which also affects society.

Professor Chesney, thank you for the interview.

(full interview text).

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