Banking: an Ethical Dilemma? Essay

IntroductionIn this report, I think to discuss the question chamfering An Ethical Dilemma? Within this is I pass on discuss honour fitted dilemmas in association with argoting. I will firstly start by giving definitions of what is meant by the terms Banking, ethical motive, and Dilemma. From here, I will go on to identify what verifys ar and what the roles and importance be for the economy. Next, I will go on to explain banking functions and with this identification, I plan to accordingly discuss the estimable dilemmas and show my impression on the question Banking An Ethical Dilemma? I will accordingly discuss both new(prenominal)wise issues unrelated to honourable dilemmas in spite of appearance the banking sector and with this I plan to use references and facts to support my argument on the subject. Finally, I will identify my finding regarding the dilemma and try to conclude on whether banking is good.Main torsoFirstly, Banking open fire be defined as one of the key drivers of the economy. Banking provides a safe place to keep excess cash, known as deposits. It also supplies liquidity to the economy by loaning this coin accrue out to help businesses grow and to throw in the towel consumers to purchase homes, cars and consumer products. Banks primarily make property by charging higher amour rates on their loans than they carry for deposits. (http//useconomy.about.com/od/glossary/g/Banking.htm) Ethics comes in numerous forms and goat primarily be defined as the code or rules of moral principles that are spate standards of good or bad, or ripe(p) or wrong decisions, in personal conduct and whence is a guide to the demeanor that is morally acceptable from a person or inside a group or an brass instrument. Ethics effect moral decision made by large number, and its chief(prenominal) par deplete is what is good and though to be exceed for society. Siddiqui (2010) With this definition of ethics, estimable behaviour is very much as it seems. The behaviour is used surrounding ethics. It is behaviour, which is seen to be accepted as good or bad, or right or wrong, indoors judicature rules and obligations and government virtues.It is about being responsibly and acting in an mediocre and fair modality taking into consideration whether the actions taken are affecting people in a way that would non be seen as ethical. Business Ethics is the same aspects and contains the same issues of ethics and ethical behaviour but is put into a business context. This is deal with on a daily bases passim every organisation in the world. Within this subject, business ethics is not just based on the organisation or employees but also to any guest that they may shake up. Many organisations have had their account tarnished with bad habituality due to the business ethics. This can be down to employment or how the organisation is ran, this can include poor working conditions, exploiting people or even down to low wag es. Organisations that do not follow in business ethics can answer in breaking the law that can lead to them being sued the problem with this is that multi-million businesses can often afford to take a pullulate but never the less that is no excuse to disregard their ethical behaviour.Finally, the term Dilemma can be defined as a situation that requires a choice between options that are or seem equally unfavourable or mutually exclusive. (http//www.thefreedictionary.com/dilemma) Banks are seen in many forms, they primarily come in the following forms, which are Retail, Central, Investment, and Building Societies. The main(prenominal) designing of a bank is to provide a safe place where people have confidence to deposit money. It is seen that banks are produced and ran by honest people. As well as storage of money, in that respect are many other purposes to bank, but they are obscure into individual banks and depends are on what form of bank they represent. Retail banks are ot herwise known has commercial/high street banks, which clients use every day for goods and service links with their everyday tasks. They main roles are to provide a service to corporate, personal, and private banking to clients. This can include bank accounts for money storage, loans, credit cards, mortgages, and bringing as well as many to a greater extent. Examples of these banks would be HSBC, Lloyds TSB & NatWest.Central banks are the main bank within a national, and have many roles, which are vital in the economy. Central banks such(prenominal) as The Bank of England unlike retails banks are need to keep the economy financial stable. The Bank of Englands roles are to intend beguile rates, hold money supply, lender of last resort, they are the bankers bank and the place of settlement and they have to regulate these to provide paramount service for the economy. Investment banks are otherwise known as merchandiser banks. The main purposes of these banks are raising capital fo r customers, businesses or for the government. This can be achieved by providing run for mergers and acquisitions as well as propriety trading, foreign exchange. Unlike retail banks, investment banks do not take deposits, these banks run from taking equity.Building Societies are financial institutions, which mainly provide saving accounts and mortgages. Unlike other banks, building societies are mutual which means that their customer are members and can therefore receive knowledge and attending meeting regarding the progress or alterations in operations and have a right to voter turnout on the actions taken. Building societies are run by shareholders and have directors whose decision it is on the strategies taken. Banks have big(p) importance within the economy, and without them, we would see a resistent world from the one we see today. Although banks pretend no new wealth but their borrowing, lending and related activities facilitate the process of production, distribution, e xchange, and consumption of wealth. In this way they perplex very effective partners in the process of economic development. (http//www.blurtit.com/q197532.html) What do banks do?This is a question, which many people may be confused by. People deposit their money into a bank for jot that it will be kept safe for them to collect at any time, when in reality when persons deposits money is to their account, the banks promptly lend the money out to another customer and in result creates a cycle. In fact, when a customer makes a deposit at a bank only when an initial 8% is kept in banking monetary resource, 90% of the deposit and lent out to another customer creating more proceeds for the bank. As well as accepting deposits banks also repay against written order, create account, lend money, render account, reasonable notice c getr, maintain secrecy (Tourniers exception), interest and fees, set off, return cheques and pay against monies held. Although these are the main roles this i s not an indication of the products and service which are provided by individual banks and may differ between them.Therefore, when looking into banking, where can we draw the line to say whether a bank is being ethical or not? I think the first factor, which needs to be pointed out, is that banks are businesses and therefore are out to make a dinero, but how far will they go in succeeding this main objective and with this jeopardise their ethical values? So as previously stated the main purpose of the bank is to make a profit and to do this they have to provide service and sell products as such. The bank is required to make a profit to provide to the shareholders, and with this will increase the business and allow the business to grow and progress. Banks as businesses are not charities and therefore need to make a profit without making a profit banks would fail without input into finance and would therefore have to relate on government documentation, which in turn would change ban ks from private businesses into national banks. With doing this hence the government would have to buzz off the funding from somewhere to provide to the bank so this would most likely required an increase in taxes which would then cost people more money in do this.The problem with this is that without the private funding from customers then it would be possible for banks to fail which would create havoc with the economy. This would put more of the publics money at risk, and could affect the circulation of money and without circulation the money, as we know it will lose value and will basically die out. If it were put into place that banks were made national this, this would mean that they would have to be more cautious and would take no risks in the services, which they provide. This would mean that people would not get the high interest returns on their account and saving which they believe that they should be entitled to but do not emergency any of the risk which is associated with this. For a bank to make a profit, they are required to use customers deposits and lend the money out to other investments. The percentage of the deposit, which is loaned out, can be seen to be angry and if customers were to find out this then they may be less inclined to deposit their monies. Is it unethical that a) Customers are not informed of this? Alternatively b) the percentage that is loaned out?This could be altered by giving the customer more information. Is 8% of a deposit a reasonable amount to keep or should it be higher. I think that if banks start reducing the percentage, which in turn would allow them to make more profit that this would be unethical and it is creating more risk to customers money and without guarantee that there is vent to be 100% return rate. I think that if banks did lower the percentage, and did increase the money that could lend then this would influence bankers decision on the ethical values if it were allowing them to make more profit for the bank and in turn increase any bonuses, which they would receive because of the extra profit. With this extra money, going stick out into circulation then this would create an increase in interest growth. Although this may be seen to be unethical, I think the main problem is the education of the public on this subject. Banker bonus is always high-level news in media, as people hear about these vast bonuses and cannot understand where these amounts are coming from.It is my perception that why people hear about theses bonus that they believe that it is their money that is being used to fund the bonus that that everyone within the bank or the average banker is going to receive these bonuses when in reality it is actually very fewer who do. I believe that banker should be allow bonuses as without the work that they put into the banks then this would result is a fall within the economy, so in result I do not believe that these bonuses to be unethical. The Financial Services Authori ty otherwise known as the FSA is the regulatory of the UKs financial services industry. This was set up by the government with the purpose to regulate the activities of financial services markets, exchanges, and businesses. All financial service must follow the standards, which have been put in place by the FSA this has consequences if not followed. This can be used to show that a bank is being ethical as the FSA would be able to notice any unethical activities within a bank and would then take action to turn down this. The make act of unethical behaviour is using customers money to achieve personal ambition.This is using the money in a scene of greed and in result to boost ego. A good role model of this would be Fred Goodwin. Fred Goodwin was the former chief executive of the Royal Bank of Scotland (RBS). His personal ambition was to build RBS to become one of the world largest banks. With the authority in his post, he created a bank that was more focused on selling the products and service than the fundamental service of banking and with the temptation to create more profit was building then this was just the beginning of the unethical behaviour. As a result of this RBS grew and quickly became one of the largest banks but within this growth it was not long before questions were raised regarding the ethical values of the banks. Following investigation, which was launched after sound blowing if, was seen how unethical Fred Goodwin had been in running operations within the bank and promptly resigned from his post after RBS baffled approximately 25 Billion, which would be able to fund the NHS for two years. To date this is the biggest ever commercial lose in history.This is a key example of when the temptation of personal gain overrides ethical value. So is it ethical for a bank to fail? Banks are formed on trust, if it is seen that a bank has failed and has lost its money and funding would create mass panic. This was seen in previous years with Northern Roc k. When as many banks in the past, Northern Rock went to the central Bank of England to ask for lender of last resort, but made public awareness and suddenly people started to panic that they money was not safe and wanted to withdraw the funds from the account. This soon resulted in the banks running out of money as the 8% per cent of deposits that was kept in storage soon ran out. Banks are now introducing ethic policies, this would allow the customer to gain a greater knowledge and insight into the bank on how they run ethical, and from here, and customers can evaluate them and from here make a decision on which bank to choose.The first bank to introduce they ethical policy was the co-operative bank back in 1992. From these policies, it allows a more transparent view into the bank and how it is ran. This can show information such as where customers deposits are loaded onto for example this money could be loaned onto a business that has poor environmental records, which you may fee l strongly about and would rather not create funding for them. Is it possible for any bank to act ethically, as a principle they may all try to portray a positive image of the ethical values but with the key goal to make profit, how far is in addition far for ethicality before they can be criticised. There are banks with exception in which they actions may be seen to be unethical but in retrospect the are somewhat ethical. Rationalisation for unethical behaviour comes in four common forms these are seen to be used to justify misconduct and other ethical dilemmas. They are* Convincing yourself that the behaviour is not really illegal. *Convincing yourself that the behaviour is in everyones best interests. * Convincing yourself that nobody will ever find out what youve done. * Convincing yourself that the organisation will nourish you. Schermerhon (2005)Ethical investment is another problem, which is often brought to the public eye. It has been said that investment bank should inves t into little companies instead of mass-market organisation to create more business with the economy. As much as this can be seen to be ethical, the problem with this is that there is higher risk investing in smaller companies as there are not necessarily going to be successful and as a result create more risk of no return on initial investment. This could then result in the bank having to act more unethically to compensate for their actions.ConclusionOverall, within this assignment I have apt(p) definitions of banking, ethics, and what is a dilemma. From here, I went on to explain what is a bank, and the different types of banks and what they roles where and how they differed from each other. I then discussed banking operation and when onto discuss the ethical dilemmas within banking sector. After doing research I believe that in banking, it is very onerous to always stay ethical and it is so easy to fall for temptation to act unethically in either time of need or for personal gain.This can be done with minimal apparent movement and sometimes without even notice. Ethics is incorporated in everyday life and is going to be constantly changing therefore I believe what is seen to be ethical could at some point be seen as unethical depending on the state of law. I have discovered that within all organisations there are constant uses of ethical behaviour both good and bad. Therefore, I believe that each organisation at some point will encounter a combination of the alternative ethical views. From analysing the ethical actions, I have concluded that even though some decisions and behaviours are seen to be unethical this does not necessarily mean that they are illegal. It is dependant of organisational procedures and government laws.Bibliography* About.com (2010) Banking. online acquirable at http//useconomy.about.com/od/glossary/g/Banking.htm Accessed 1st April 2011 * Siddiqui, K. (2010) Lecture Hand-outs 6 8.* The Free Dictionary (2010) Dilemma. online Avail able at http//www.thefreedictionary.com/dilemma Accessed 17th frame 2011 * Blurtit (2010) What is the importance of the banks. online Available at http//www.blurtit.com/q197532.html Accessed 18th March 2011 * Schermerhon, J.R. (2005) Management 8th ed. New York. John Wiley and Sons Inc. * Boatright, J.R (2008) Ethics in Finance. 2nd ed. Oxford. Blackwell Publishing. * Boartright. J.R (2000) Ethics and the conduct of business. 3rd ed. New Jersey. Prentice Hall, Inc. * Parkin, M., Powell, M., & Matthews, K. (2005) Economics 6th ed. London. Pearson facts of life Limited. * Co-operative (2011) Why we have ethical polices online Available at http//www.goodwithmoney.co.uk/why-do-we-need-ethical-policies/ Accessed 6th April 2011 * Bank of England (2011) About the Bank online Available at http//www.bankofengland.co.uk/about/index.htm Accessed 23rd March 2011