Sir Mervyn King wants "a real change in the culture of the [banking] industry. He's an optimist, I'll give him that.There are (at least) three big obstacles to such a change:
1. Bankers tend (with exceptions) to be selected for a money-chasing amorality. Most jobs in the sector are pretty dull - I'm surprised I stuck there for eight years - and "socially useless". The sort of people attracted to them are likely to be disproportionately motivated by hard cash.
2.The mere salience of money tends to make people more selfish (pdf) and more likely to cheat. It's difficult to see how the salience of money in banking can be reduced.
3. Organizations and societies tend to display path dependence - they rarely change radically for the better quickly. To paraphrase Max Planck, culture advances one funeral at a time.
Now, I don't say this to deny the possibility that "strong leadership" might change banks' culture for the better - but it'll be a long haul.
But herein lies a problem. Talk of "culture" isn't just waffle.The trouble with banks is that they are riddled with principal-agency problems. Shareholders and regulators have only imperfect control over CEOs, CEOs have only imperfect oversight of senior managers, and senior managers have limited control over their underlings, and so on.
Now, many organizations have such problems. And in many of them, the solution lies in culture. For example, cultures of professional pride, reciprocal altruism or a work ethic ensure that workers do a good job even if they are not closely supervised. As - ahem - Bob Diamond said "the evidence of culture is how people behave when no-one is watching."
In banking, however, the culture that helps solve agency problems is lacking.
So, how to create it, given the obstacles I've described?
We could learn from pre-modern states. They imposed brutal punishments upon wrong-doers, in part because they needed to terrorize their subjects into submission simply because they had no other means of controlling them. Similarly, if shareholders or regulators cannot control bankers - and it looks like they can't, draconian punishments for wrongdoing are needed to keep them in line. As Voltaire nearly said, "it is wise to kill a banker from time to time to encourage the others."
Of course, such a policy has drawbacks. But the point is that radical change in the face of large barriers to change requires radical action.