CEVI-WP 08-03

Pondering Corporate Social Responsibilities of Bankers Regarding Reverse Convertible Bonds
Jos Leys


How is a socially responsible investor to judge banks and financial instruments? The scope for social responsibility in finance is extremely wide: finance is everywhere. Bankers perform a difficult and troublesome profession. Their reputation and “corporate social responsibility” (CSR) are constantly under pressure and sometimes vigorously attacked. Financial intermediation is not only an activity that by its intrinsic complexity and intermediating function within the economy easily arouses distrust. It is also susceptible to different paradigms. Some consider financial intermediaries as politicians that shape our future for better or for worse by providing or not providing funding to real world projects; in this view, bankers discharge their social responsibility by directing the economy towards ecological and social goals. Others consider financial intermediation as professional management of trust in the context of information asymmetry; in this view, bankers discharge their social responsibility by generating and earning trust. This article covers both views on the corporate responsibility of banks, focussing on the intermediation that is entailed in the construing and distributing of “reverse convertible bonds”.

We probe into the nature of the curious financial structures that go by the name “reverse convertible bonds”. We model these structures as speech acts that can performed in different manners and we review possible strategies and tactics in distribution by retail bankers. We suggest how they can show superior corporate responsibility and diminish the reputation risk that originates in the information asymmetry between banker and customer. That analysis covers the paradigm of bankers as professional managers of trust. We then treat the other paradigm by looking at ecological and social aspects of the matter. We find that the first paradigm is pertinent for the socially responsible investor whereas the political paradigm is not.

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