Goldman Sachs

Former SEC Chairman Arthur Levitt, who serves as a senior policy advisor for Goldman Sachs, spoke to Bloomberg TV’s Erik Schatzker this morning on “Inside Track.” Levitt said that Goldman should stop saying, “The firm puts customers first.” He goes on to say, “There is a logical, reasonable, fair, understandable tension between a seller of a product and a buyer of a product. That’s not to stay that buyers should beware. It is to say there should be transparency. But on the other hand, let’s not create a fellowship of buyers and sellers that will march into the sunset.” Whoa!

Hello again, this does not sound like a bank, and this is the reason investment brokerages must be separated once more and for all from banking. An investment house sells products, that’s not to say the public should not have some protection in buying these products, but they are investment products and the buyer can choose to buy or not and the tension makes sense.

However, a bank has a fiduciary responsibility to its depositors and customers that transcends the free market. The bank has a duty of safety for both the bank and the customer.

“A bank’s fiduciary duty, whenever it is applied, sets a very high standard of conduct for the bank. It is obliged to act with integrity and fairness. It must also act with professionalism and skill. However, beyond that, fiduciary duty is underpinned by a duty to exercise the power vested in the bank, without abusing it. The key words are loyalty and fidelity. A bank “as a fiduciary” is required to perform its duties solely for the purpose for which the power was vested in it, without ulterior motives and while protecting the interest of the beneficiary – the customer. Moreover, a bank must prefer the interest of its customer to the interests of others, including its own self-interest; in fact, a bank must avoid being in a situation of a conflict of interest. The fear is that a bank might not withstand temptation and might not promptly guard the interest of the customer before its own interest.” ROLF H. WEBER University of Zurich