Better Bankers, Better Banks
Promoting Good Business through Contractual Commitment
Claire A. Hill and Richard W. Painter
The failure of the America’s financial institutions, which contributed to worldwide economic collapse, was in large part a failure of banks to appropriately assess risk. Seven years after the financial crisis, bankers continue to make investments that are high-risk and highly speculative—at great cost to the potential stability of the financial system.
Claire A. Hill and Richard W. Painter argue that the banking industry is lacking in scruples because the current culture of banking continues to accept—and even reward—unscrupulous behavior. Bankers behave as they do because they are rewarded—in money, status, and better professional prospects—for doing so. Sometimes, incentives are linked to genuinely good results, like a truly profitable transaction. Too often, however, they reflect problematic behavior: The results yielding a bonus are fleeting and timed to coincide with a measurement period. Or a bank makes a profit by selling a customer an unsuitable investment. Banks have long been regulated, but regulatory solutions alone will not be sufficient to create change because they are directed at institutions and not at bankers themselves. Hill and Painter argue that what is needed is a return to a system that incorporates some personal liability.
Claire A. Hill is professor and the James L. Krusemark Chair in Law at the University of Minnesota Law School. Richard W. Painter is the S. Walter Richey Professor of Corporate Law at the University of Minnesota Law School.