In Too-Big-to-Fail We Trust: Ethics and Banking in the Era of COVID-19

The COVID-19 economic crisis has brought to light something very broken in the American banking system—that banks prioritize their own profits over the interests of those they serve and over the interests of social justice. And they are permitted to do so because they do not owe a fiduciary duty to their customers and are not social welfare maximizing entities. In an effort to support the economy, the U.S. government passed numerous stimulus acts, which included, among other things, a Paycheck Protection Program (PPP) and the distribution of relief checks to consumers. To effectuate this massive distribution of liquidity on an expedited basis, the government relied on big banks. But instead of prioritizing the public welfare, the banks focused on their bottom lines and, thus, did not carry out the true intent of the stimulus. For example, with respect to the PPP, while the Small Business Administration was required to process the loans on a first-come, first-served basis, the banks were not. Absent that requirement, the banks prioritized richer and bigger customers. As a result, women- and minority-owned small businesses, as well as peripheral area-based small businesses, found themselves facing more barriers to getting loans. Similarly, with respect to the direct distribution of relief checks to consumers, banks prioritized their own interests over those of their customers. For example, in an effort to collect bank debt, banks froze and seized the funds from government relief checks that had been deposited into consumer accounts before the consumers that actually needed those funds ever received them. Consequently, various state attorney generals and courts had to intervene and mandate that the consumers be permitted to use the funds as the government had intended—for necessities like food and shelter. There are several techniques we can employ to modify banks’ ethical behavior and cultural norms. This Essay discusses such methods, which include (i) a top-down regulatory approach; (ii) the creation of market-led initiatives; (iii) an interpretive fix, offered by the judicial system; and (iv) a public criticism and shaming semi-regulatory approach.