Business Ethics and Social Responsibility

Term Paper
Summer I

Is Banking a Social Dilemma?

Siddharth Singh
June 20th, 2018

Introduction
 In this report, I plan to discuss the question ‘’Is Banking an Ethical Dilemma?”. Within this is I
will discuss ethical dilemmas in association with banking. I will firstly start by giving definitions of what
is meant by the terms: Banking, Ethics, and Dilemma.
From here, I will go on to identify what banks are and what the roles and importance are for the
economy. Next, I will go on to explain banking operations and with this identification, I plan to then
discuss the ethical dilemmas and show my opinion on the question ‘Banking: An Ethical Dilemma?’
I will then discuss any other issues unrelated to ethical dilemmas within 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 ethical.

Main Body
Firstly, ‘Banking’ can be defined as one of the key drivers of the economy. Banking provides a
safe place to save excess cash, known as deposits. It also supplies liquidity to the economy by
loaning this money out to help businesses grow and to allow consumers to purchase homes, cars and
consumer products. Banks primarily make money by charging higher interest rates on their loans than
they pay for deposits. (http://useconomy.about.com/od/glossary/g/Banking.htm)
‘Ethics’ comes in many forms but can primarily be defined as the code or rules of moral
principles that are set standards of good or bad, or right or wrong decisions, in personal conduct and
therefore is a guide to the behavior that is morally acceptable from a person or within a group or an
organization. Ethics affect moral decision made by people, and its main concern is what is good and
though to be best for society. Siddiqui (2010)
With this definition of ethics, ethical behavior is very much as it seems. The behavior is used
surrounding ethics. It is behaviour, which is seen to be accepted as good or bad, or right or wrong,
within organisation rules and obligations and government laws. It is about being responsibly and
acting in an honest and fair way taking into consideration whether the actions taken are affecting
people in a way that would not 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 basis throughout every
organisation in the world. Within this subject, business ethics is not just based on the organisation or
employees but also to any customer that they may have.
Many organisations have had their reputation tarnished with bad publicity 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 wages. Organisations that do not follow in business
ethics can result 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 hit 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 purpose 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, there are many other purposes to bank, but they are
separated into individual banks and depends are on what form of bank they represent.
Retail banks are otherwise known as commercial/high street banks, which customers 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 customers. This can include bank accounts for
money storage, loans, credit cards, mortgages, and saving as well as many more. Examples of these
banks would be; HSBC, Lloyds TSB and NatWest.
Banks have great importance within the economy, and without them, we would see a different
world from the one we see today. “Although banks create no new wealth but their borrowing, lending
and related activities facilitate the process of production, distribution, exchange, and consumption of
wealth. In this way they become very effective partners in the process of economic development.”
(http://www.blurtit.com/q197532.html)
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
funding, which in turn would change banks from private businesses into national banks. With doing
this then the government would have to get 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
public’s 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 want any of
the risk which is associated with this.
 I think that if banks did lower the percentage, and did increase the money that could lend then
this would influence banker’s 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 back 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 few 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 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 example 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.
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 feel 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 too 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.

Ethical investment is another problem, which is often brought to the public eye. It has been
said that investment bank should invest into smaller 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.

Conclusion
Overall, within this assignment I have given 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 difficult to constantly 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 effort 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] Available 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] Available at http://www.thefreedictionary.com/dilemma
[Accessed 17th March 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 Education
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]