What Should Banks Do? The Role of Rationality and Legitimacy in the Banking System

Project management:
Prof. Dr. Bernhard Emunds, Prof. Dr. Jürgen Kädtler, Prof. Dr. Ulrich Klüh
Project assistance:
Dipl. Pol. Alen Bosankic, Dr. Michael Faust, Dipl. Soz. Korbinian Zander
Project term: March 1, 2015 – February 28, 2018

Research is conducted as a joint research project that is coordinated by the Soziologisches Forschungsinstitut Göttingen (SOFI). The overall project has two main objectives:

First, it analyses the development of notions of rationality and legitimacy by which banks in Germany have been confronted over time by different publics: the general political and lay public (Nell-Breuning-Institut), the expert community of banking regulation (Hochschule Darmstadt)) and the Business Community (SOFI).

Second, it analyses how and in how far the different expectations had a practical impact on bank strategies, organizational forms and conduct. These organizational analyses take into account different ownership and governance structures (private versus public banks) which are considered to have an impact on the specific reference to external expectations.

The Oswald von Nell-Breuning-Institute’s project »expectations towards banks in print media – analysis and economic ethical reflexion« specifically deals with societal expectations, i. e. expectations towards banks that can be observed in the public sphere constituted by politics and mass media. Therefore, articles in selected print media are analyzed in terms of qualitative content analysis. It is assumed that general public or societal expectations towards banks are usually latent because they are taken for granted. In times of crisis, though, they are disappointed and thus become subject of manifest communication and become accessible to hermeneutical reconstruction. At the same time, crises are specific situations in which new sets of expectations are discursively negotiated, stabilized and institutionalized. Thus, the analysis focuses on periods in which, due to the disappointment of established expectations, intense public debates about the significance and responsibility of banks for the economy as a whole and for society arise. These are 1973-1975 (Hersatt Bank crisis) and 2007-2009 (global financial crisis). The following questions lead the research:

  • What sorts of expectations can be observed in practice in print media? Which expectations are prominent in public debates and which become relevant for regulatory policy?
  • What actors or rather speakers and recipients constellations can be reconstructed? Do different speakers emphasize different expectations? Are different actors confronted with different expectations? Are there general expectations that allow different groups of actors to expect differently?
  • What kind of contradictions, conflicts and paradoxes come into force and how are these processed to newly stabilized sets of expectations?
  • Are given expectations that have been factually disappointed in crises stabilized again? If so, under which circumstances? And, how is this justified or rather how is their particular disappointment explained?
  • What patterns can be identified regarding the articulation of expectations towards banks comparing different print media and different periods of time?

Progressing further, it is intended to discuss paradigmatic articles from the perspectives of sociology and economic ethics. Thereby, the normative context of the public sphere as higher-level intersubjectivity and its empirical constitution by mass media will be taken into account.

The subproject »On regulators‘ expectations and regulating expectations – The evolution of deceived expectations in banking regulation« particularly focuses on expert communities. In particular we look at functional and behavioral expectations of those being directly involved in regulatory processes and policy making.

For experts, one would expect a rather strong stability with respect to the formation, confirmation and revision of expectations. Moreover one would assume that the interplay between beliefs of different order is being reflected more intensely. As banking institutions are at the core of the overall research project, the analysis looks at the Basle committees‘ initiatives and accords. These have increasingly shaped the regulatory environment for banks since the 1970s. Here, special attention is being paid to the economic expertise in the initiation of measure to de-regulate and re-regulate.

By analyzing consultation documents and processes as well as by conducting expert interviews, the following research questions will be addressed:

  • Are there any precise functional roles that can be identified in the regulatory processes, including with respect to the backup provided by economic expertise? What significance do these functional roles play within the banking system and within individual banks?
  • Are there any behavioral expectations with respect to regulatory processes and policy making on the one hand, banks diverse stakeholders on the other?
  • Do regulatory authorities and economic experts differentiate between the operational logic of systems and organisations when forming their expectations?
  • To which extent and how is the form and constitution of different banking institutions being considered in the formulation of expectations?
  • In what form are expectations of stakeholders directly involved in the regulatory process? How are the expectations of the public being interlinked?

Special attention is given to the characteristics of the German banking system and its three pillars. In this regard, a switch between stages of convergent and divergent expectations towards public and state-owned institutions, cooperative and private banks could be imagined.

The SOFI subproject »Guiding ideas of the business community and the selective reference to societal expectations by banks regarding business policy and organizational forms« covers the analysis of the business community and the organization analyses. Different kinds of banks, their associations, specialized consulting firms, business analysts and the business press form the business community. In this particular public, industry specific guiding ideas, professional role models, generic strategies and organization models, criteria for success and specific management practices circulate among its members.  These ideas are compared to each other, deliberated or controversially confronted. From time to time some guiding ideas may emerge as hegemonic.

Based on document and media analyses and expert interviews we approach the following research questions:

  • Which principles for doing business have been articulated and propagated? What is the relative impact of criteria for business success and societal expectations and/or attribution of societal functions in formulating business principles?
  • Which objectives and success criteria have been identified and propagated over time and which of them have been criticized as outmoded and outdated?
  • Which markets and which products or product lines have been identified as core activities for banking?
  • Which professional role models and virtues for banking personnel have been emphasized?

The exemplary organization analyses explore how the guiding ideas circulating in the business community concerning business policies, organizational structures and professional profiles have been picked up, specified, modified or eventually ignored or rejected by different types of banks.

Special emphasis is given to work orientations and work performance of banking employees. On the one hand, we are interested in procedures and instruments of behavioral control by the organization. On the other hand, employees themselves develop own notions of rationality and legitimacy during their occupational socialization as well as experience-based assumptions about what counts as appropriate behavior in particular situations in the respective organization. How these different professional orientations and organizational restraints meet and are negotiated in practice will be explored by comparing different banking groups in the main fields of banking activity (retail and business banking).

Gefördert vom Bundesministerium für Bildung und Forschung
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