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IMF chief calls for promoting individual integrity to restore trust in financial sector

Xinhua, November 6, 2015 Adjust font size:

Christine Lagarde, managing director of International Monetary Fund (IMF), called on Thursday for promoting individual integrity to restore public trust in the financial system.

The goal of the financial sector must be not only to maximize the wealth of its shareholders, but to enrich society by supporting economic activity and creating value and jobs, she said at a conference hosted by the Federal Reserve Bank of New York.

However, reckless behavior, followed by episodes of misconduct that persisted well after the onset of the crisis, cost the financial industry's most valuable asset: trust, she said, citing cases of rigging interest rates and exchange rates and the London Whale.

According to a 2014 Harris Poll, up to 45 percent of the people rated the overall reputation of the industry as negative. The industry ranks third from the bottom after government and tobacco.

Noting that regulation and a robust governance structure are two key pillars of a framework that can instill ethical behavior in finance, she said the individual is the third pillar without which there can be no equilibrium.

"So if the financial industry is to put people before profits, and society before shareholders, we need to see a change in the values and behavior of individuals themselves," Lagarde said.

She calls for a culture that holds individuals accountable for the consequences of their behavior, noting that change in culture must come from within.

It must be determined, sustained, and encouraged throughout the organization, from top to bottom, she added.

One way of inducing such cultural change is by appealing to the "moral compass" of individuals, by reinforcing the incentives for prudent risk-taking and a socially responsible exercise of their fiduciary duties.

She also emphasized that industry leadership should set the right tone at the top. It needs to promote "zero tolerance" toward unethical behavior.

Lagarde quoted words from Warren Buffett for conclusion: "In looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you." Endit