The financial

crisis case study

Martynas Simanavicius
21188211

The financial crisis was where the recession started. Most of the
blame falls to banks, but the government is not forgotten as well. In this
assignment I will try to analyse the ethics-related points of the financial crisis.
1.
The financial crisis affected different groups of stakeholders. To
many of them the crisis gave only harms but some benefitted.
It was an absolute tragedy for people who owned a certain part of the bank
(shareholders). In the case of the worst crisis affected banks (such as Northern
Rock or RBS), shares lost their value to almost zero. The main reason for this is
that in order to save banks from failing, UK Government financed 70 billion to
support them, therefore taking huge percentages of banks ownerships.
The house prices in the UK increased more than anywhere else and banks
became reluctant to issue loans to people wanting to acquire property which
resulted in house owners equity becoming negative. On the other hand, even
though house owners faced the inability to sell their property, the value of it
increased, which after some time will turn out positively.
Government has borrowed heavily to strengthen banking system, resulting in
high taxation and cuts in public expenditure, but now it owns a great part of
banks shares, which allows them to make decisions and implementations
regarding new regulations.
Bank customers faced the high taxation, increased interest rates for loans, or
even refusal from banks to lend their customers money.
The UK banking system witnessed the loss in building societies due to
governments inability to give them support. In consequence of some bank
failures, depositors lost most of their savings.
Large and small businesses stated that their loans had been withdrawn with
banks reluctance to provide them with a new source of finance, in spite of
customer credit being vastly available.
2.
Utilitarianism is taken to be a form of consequentialism which states
that consequences of the behaviour are the basis when judging whether that
behaviour was right or wrong. Utilitarian perspective proposes that the greatest
good is the one which grants the most benefits for society. In this case,
although the governments financial support to banks prevented them from
failing, the UK Governments tightening of banking regulations might have
caused more harm than benefits, and, according to utilitarian perspective, it
was not proper thing to do. One big reform indicates that banks are meant to

maintain higher capital ratios in order to support their lending. The main issue
with this is that customers, who are willing to acquire a loan, will have to show
a good credit history and thus banks will be more reluctant to lend them
something. As a consequence to this, London will become less competitive
internationally as a banking centre. Through the huge borrowing the
government made taxes increase while public expenditure decreased, resulting
in customer dissatisfaction. Also, UK Government proposed to grant more
power to FSA which would enable it to rip apart the contracts between bank
executives and traders with immoderate bank bonuses. Even though this
reform would give some justice to the banks and would be a right thing to do,
looking from a utilitarian perspective I would argue against the reforms.
3.
According to Immanuel Kants maxim of duty, which states that one
should threat others in a way that they would like to be treated, banks acted
rather unethically. The deregulation of the banking sector granted banks much
more freedom, thus they behaved however they wanted. They started paying
less attention to whom they were lending money (some appeared to have poor
credit histories and never likely to repay the loan), lending tens of times the
cash that was deposited with them and the interest in new business became so
high that banks had to maximise their lending. All of this led to faking loan
books and making other fiddles which subsequently encouraged other banks to
not issue loans to these aggressive lenders that were short of money to finance
their bank operations. This unethical behaviour caused interest rates to rise
and most importantly financial crisis. Banks did not think on what would this
evolve to and certainly did not consider the treat others the same way you
would like to be treated concept, as well as other maxims of duty. So what
would have happened if everyone (meaning society) knew what the banks were
doing? Well, assuming that most of the people would actually have taken
action, they probably would have contacted the press or television and this
folly would have been known in advance, before it was too late. The actions
could have been taken to soften the financial crisis or even it would not have
happened at all. Furthermore, the other maxim circulates around the
consistency, in other words, what if everyone acted in the same manner that
the banks did? The unethicality and selfishness (as seen in bank actions) would
ruin the world order. To sum up, banks did not act ethically because they
caused great harms to society and other stakeholders.
4.
The basic human rights apply to every human on our planet. Some
of them state that people have right to be free from prejudice of their age,
gender, race, free from torture, slavery and the right to the pursuit of
happiness. However, in this case it appears that more than two basic human

rights were violated: fair treatment and a right to a free and fair world. The
banks, before this financial crisis ignited, were acting selfishly and unfair,
therefore creating harms for stakeholders. All the people who suffered from the
consequences of financial crisis did not deserve that, thus the banks violated
their basic human rights. However, the most affected stakeholder group, in my
opinion, was shareholders who owned parts of banks. Their shares were
reduced to shoddy, a lot of shareholders money was lost and thus
shareholders rights as humans were harmed. Even though banks executive
officers, who were mainly in charge of all the operations, had the right to the
pursuit of happiness to themselves by making the excessive amounts of
money, they clashed this human right with the right to a fair world. Hence this
made the society and other stakeholder groups feel being treated unfairly.
Unlike in the ancient society, the modern worlds Universal Declaration of
Human Rights states that human rights are inalienable. Every human being is
protected by the United Nations without countrys (e.g. the UK) intervention. To
my way of thinking, in this situation it is customers whose rights matter the
most. Banks without customers are like human beings without water both
cannot survive. The best known purpose of banks is lending and storing money.
Therefore the society is the stakeholder whose rights matter the most.
5.
One of the other normative theories, called Virtue Ethics, is person
rather than action based. Therefore it tries to look inside of a persons moral
character that encouraged him to perform a certain action. It also teaches us
that an action is only right if it is an action that a virtuous person would carry
out in the same circumstances (Crane and Matten, 2010). In our financial
crisis case, it is believed that bank executive managers had problems with their
characters. The morality was disturbed by something that influenced them in
doing wrong actions. There is a list of main virtues which consists of justice,
fidelity, self-care and prudence. Fidelity states that people who are closer to us
must be treated with special care. Bank managers doubtless intended to treat
their beloved ones in a special way with the easily received money which
turned out to financial crisis. Or it even could have meant their own treatment
self-care. However, the justice let them down because not everyone was
treated equally.
Egoism is the other of the normative theories I have chosen to apply to this
case study. Egoism is seen as lifting self-interests and yourself above the
others. Before the financial crisis, egoism greatly impacted the bankers who,
full of desires to cheat their way into the happiness of themselves, chose not to
care about the others. These views were unethical and egoistic in all possible
ways. Trust of banks was weakened significantly, all the cause of the
selfishness and egoism of bankers.

Bibliography
1. Crane, A., Matten, D. (2010) Business ethics: managing corporate citizenship
and sustainability in the age of globalization (3rd ed.). Oxford University Press:
Oxford.
2. Dermine, J. (2013) Bank regulations after the global financial crisis: good
intentions and unintended evil. France.