Canadian Broadcasting Corporation (CBC), Canada’s tax-payer funded radio- and television broadcaster, is calling for tighter regulation of banks—true to its leftist, anti-business leanings. This has been prompted by three long-time TD Bank Group employees going to CBC’s Go Public news segment, complaining about increasingly “unrealistic sales targets.” These employees confessed to illegal tactics to meet such targets. One teller said: “When I come to work, I have put my ethics aside and not do what is right for the customer.”

Although TD has over 80,000 employees, based on these three employees’ complaint, CBC’s report suggests that the bank has a high-pressure sales culture, which has resulted in illegal sales tactics, like those that were widespread at Wells Fargo. (A large portion of Wells Fargo front-line employees’ pay was tied to achieving high sales goals, prompting many to create new accounts without customers’ knowledge and consent and charge fees on them).

The bank has denied such allegations, but CBC news reports has triggered a federal investigation of Canadian banking practices to determine how the government can ‘better’ regulate the banks. The premise of CBC’s allegations and the federal investigation is that such regulations are needed to protect customers from banks that allegedly are trying to put profits before people—the familiar claim from those who regard businesses as evil exploiters of customers and employees for the benefit of the ‘fat cat’ owners.

But the CBC and the federal government are wrong. Federal investigation and more regulation are not needed, even if it turned out that TD and other banks have high-pressure sales cultures and some employees have engaged in fraud.

This is not to sanction deception and fraud of bank customers. However, there already are laws in place to protect customers’ right to their property, which can be used to prosecute any illegal selling. Illegal actions are not the means to long-term profit maximization, as the Wells Fargo law suits, multi-million dollar settlements, employees fleeing elsewhere, and loss of reputation have convincingly shown.

The best way to spur ethical conduct by banks—trading value for value with their customers—is to deregulate banking.

Trying to sell customers products that they don’t need or more expensive products than necessary—as irrational as such attempts are—through legal cross-selling and upselling techniques, cannot be prevented by government telling the banks what and how to sell. The best way to spur ethical conduct by banks—trading value for value with their customers—is to deregulate banking. That would create a competitive banking industry, where customers would have true choices if and when their bank does not live up to their expectations.

In a deregulated—free—banking market the banks,’ their customers,’ and the employees’ interests would truly align. It would be in the banks’ long-term interest to have satisfied customers who are getting valuable banking products at competitive rates, which would strongly dis-incentivize high-pressure selling of products that do not meet customer needs. It would also be in the banks’ long-term interest to have productive, well-trained, and fairly compensated employees who provide competent service to customers.

It is possible for banks to conduct themselves ethically and create such win-win conditions even in today’s regulated banking market, as banks like BB&T have proven. But that requires the exceptional leadership based on a rational moral code, such as provided by John Allison, who was BB&T’s long-time CEO. This cannot be achieved by most banks without the incentive of free-market competition.

Free-market competition would deter the zero-sum game of banks exploiting customers and employees, which can occur when banks are protected against competition by government regulations. Bad banks would not be able to survive, as governments would prosecute illegal activity, and customers and employees would flee, as there would be many other choices where the win-win conditions of trading value for value for mutual benefit would exist.

 

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Jaana Woiceshyn teaches business ethics and competitive strategy at the Haskayne School of Business, University of Calgary, Canada.She has lectured and conducted seminars on business ethics to undergraduate, MBA and Executive MBA students, and to various corporate audiences for over 20 years both in Canada and abroad.Before earning her Ph.D. from the Wharton School of Business, University of Pennsylvania, she helped turn around a small business in Finland and worked for a consulting firm in Canada.Jaana’s research on technological change and innovation, value creation by business, executive decision-making, and business ethics has been published in various academic and professional journals and books. “How to Be Profitable and Moral” is her first solo-authored book.

7 COMMENTS

  1. Heads should roll, as they eventually did at WFB.

    Bank actions seem like fraud to me. (Alleged actions weren’t “upselling”, which is trying to persuade the customer, they were just grabbing.)

    (Fraud being a form of initiation of force, as explained by Tara Smith in “Moral Rights and Political Freedom”.)

    • Thanks, Keith, for your comment. I agree that fraud should be prosecuted (as I say in the post, government’s role is to do that). Allegations were made by three employees, and until they are proven, I would not condemn TD. If the bank is encouraging fraudulent behavior, the executives should be held liable. And even if such behavior is not deliberately encouraged by the bank’s leadership, poor communication and lack of training that could be the causes, are poor management–which can be a big problem.

  2. http://www.macleans.ca/economy/economicanalysis/how-canadas-big-banks-pumped-up-the-housing-bubble/

    That’s another example of how government warps dealings.

    (Recall that the US’ recession of 2008 was the result of government manipulating interest rates, enticing people to borrow what they could not afford, facilitating speculation by accepting borrowings with very low down payment, packaging junk mortgages for sale to unsuspecting individual investors, and playing a game of increasing numbers in its massive agencies like “Fannie Mae”.
    Some banks were literally out of control – Washington Mutual was not even checking that properties it granted a mortgage to physically existed.
    In contrast, BBandT avoided some financial offerings because they weren’t good for customers thus weren’t good for BBandT in the long run.)

  3. The retail banking services of schedule one banks could be split off, nationalized and operated like the Alberta Treasury Branches, with full public accountability. Let private banks play in the commercial segment and take their own risks. An alternative would be to require schedule 1 banks to operate like credit unions — under the democratic control of members…I.e. 1 member 1 vote. They would still have to compete on the basis of dividend performance and service quality but members would be able to regulate the behaviour of managers internally based on the values the membership chooses.

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