Question:
Discuss about the Ethical Issues in the Banking Sector.
The report analysis is based on the issues faced by the banking and financial services sector. The different issues that is faced by the banking sector are mainly the ethical issues related to the functions of the bank. The other issues are related to the focus of the sector on sustainability and the analysis of the stakeholders of the financial organizations. The factors of the banking sector that help the banks and other financial organizations to manage the ethics related to the business operations are discussed in detail. The ways by which the business ethics are managed in the banks and other financial institutions is discussed in the report (Cohn, Fehr and Maréchal 2014). The ethical issues in the banking and financial industry affect both the banks and the consumers of the financial institutions as well. The perception of the public regarding the unethical ways of business operations performed in a bank is an important factor that affects the banking industry. The main objectives of the report are to analyse the ethical issues related to the banks and the financial institutions and thereby the ways by which these issues are handled are also discussed (Hartman et al. 2014).
Ethical issues faced by the banking sector
The banking and financial sector faces a lot of issues which are discussed further. The self-interest of the bankers is fulfilled at someone else’s expense. The focus of the maximization of profits someone shifts from long-term to the short-term basis. The swaps in the banks falls into the category of short-term goals. The income that is generated for the organization in one quarter is given more importance as compared to the long term profits. The other major ethical issues in the banking industry is the way by which the banks charge high interest rates from their customers for the money lent by them (Itani and Inyang 2015). This type of practice becomes a burden on the customers of the bank and hence the main principle of the bank that is to protect the money of the customers is not followed. Another ethical issue that is related to the banks is the handling of the assets of the customers that are possessed by the banks. The irresponsible way of lending credits to the customers is a way of business that is not acceptable in moral ways. Some of the banks also invest their money on arms and ammunitions, which include the investments that are done on military industry (Klikauer 2015). However, some of this money is also used for destructive purposes and this is an ethical issue related to the financial industry. The banks or financial institutions which invest in the businesses which do not have any type of planning regarding social responsibilities is another ethical issue in this sector. The companies which cause damage to the society and the environment at large can create an ethical issue regarding the operations of the bank. These are the major ethical issues that are faced by the banking industry and should be taken care by the financial institutions (Kolk 2016).
Sustainability issues of the sector
The sustainability issues related to the various banking and financial operations are discussed further. The liability of the lenders is related to the risks of the finances of the bank that they have to face while lending money to the customers. The loans granted by the bank and the credit given to the customers is the liability and the risk that they are facing. The ability of the borrowers to make an impact on the environment and cleaning up his or her surroundings also has an effect on the financial position of the person. The concerns regarding the external environment has increased in the last few years and this has led to many changes in the policies and the procedures of the financial institutions. The banks are now investing time and money on their environmental performance (Michaelson et al. 2014). The roles of the financial institutions regarding the environmental sustainability has become much more prominent in the recent times.
Major stakeholders of the banking sector
The stakeholders of the banks or the financial institutions are mainly those who make the decisions regarding the financial operations so that banks can make profits from these operations. The stakeholders can also be defined as someone who has a stake in the decisions and the operations of the banks. There are many types of stakeholders of the banks and other financial corporations which are discussed further. The owners of the organizations or the shareholders are the major stakeholders as they invest their own money in the business venture (Ogbari et al. 2016). The return they will get on their investment and the dividend received by the shareholders is important for the institution as well. The employees of the organization are also one of the major stakeholders. The performance of the employees in the banks and the financial institutions is directly related to the profits of the bank. The better performance of the employees ensures more profits for the business. This is main reason for considering the employees as the major stakeholders in today’s business environment. The unions of the employees of the banks are also one of the major stakeholders. The increase of salary of the employees and the ways to protect their jobs is dependent on the unions of the employees. The other stakeholders of the banks include the customers. The customers are the ones who have their money in the banks (Pérez and Bosque 2015). They help in increasing the revenues and the profitability of the banks and this makes them the major stakeholders. The suppliers of the banks or the financial institutions can also be termed as the major stakeholders. The prices of the goods and services are dependent on the suppliers as well. The creditors of the banks from where they borrow money are one of the most important stakeholders of the organizations. The government of any particular country or state is also considered to be the stakeholders of the banks. The rates of lending money to the borrowers and the interest rates are determined by the policies made by the government. This can therefore impact the profitability of the organizations as well (Pérez and Rodríguez del Bosque 2014).
Factors driving the business ethics of the banking sector
The business ethics in the banking sector and the ethical behaviour of the banking professionals are affected by some factors as discussed further. The personal moral or ethical behaviour of the professionals affects the business ethics of the organization. The laws and regulations that are formulated by the government is another factor that impacts the business ethics in the financial sector. The ethical behaviour of the business organizations in the financial sector can be regulated by the policies made by the government. The policies and procedures and the other laws other than those made by the government also impact the ethical behaviour of the organization (Prasad, Kumar and Kapoor 2017). The ethical codes laid by the financial institutions itself is another factor that impacts their business ethics. The business ethics of the company impacts its reputation and goodwill in the market. The social pressure exerted from the external environment of the organization impacts the business ethics of those institutions. The services provided by the financial corporations and their impact on the society at large has an impact on their business ethics. The ethics related to the industry in which the industry is operating is another factor that affect the business ethics of the banks and the financial institutions as well (Trevino and Nelson 2016).
Ways by which managing ethics has helped the financial sector
The management of business ethics in the banking sector helped the sector in many ways as discussed further. The basic rights of the employees need to be protected and the rules related to the safety and health of the employees should be followed. This helps in employee satisfaction in the sector. Products, services and the operations of the banking sector needs to be improvised in a continuous basis so that it helps the banks and other financial sectors to attract consumers. The information produced by the financial institutions should be accurate and the business records also need to be true so that the consumers are not mislead and this helps the banks to increase their credibility (Ward et al. 2015). The institution should be open to any type of competition and should not undertake wrong ways to counter the competition, this will help the banks to increase the trust vested on them by the customers. The procedures and policies of the organization needs to be updated on a regular basis to align them with the government rules, so that the financial institutions can gain profits from the government policies. The personal data and records of the customers of the banks and the other financial institutions should be maintained properly and should not be used in wrong ways, this will help the banks to protect the privacy of their consumers.
Conclusion
The report can be concluded by saying that the ethical issues related to a business are important for the proper functioning of the organization and its profitability as well. The ethical principles laid by the organizations help in creating their image in the market and the ways by which they conduct business operations helps in attracting customers. The banking and the financial corporations also need to take care of the environmental sustainability issues of the industry so that they can conduct their operations in a profitable manner. It can therefore be said that the ethical behaviour of the financial institutions have an impact on their reputation and sustainability.
References
Cohn, A., Fehr, E. and Maréchal, M.A., 2014. Business culture and dishonesty in the banking industry. Nature, 516(7529), pp.86-89.
Hartman, L. P., DesJardins, J. R., & MacDonald, C. (2014). Business ethics: Decision making for personal integrity and social responsibility. New York: McGraw-Hill.
Itani, O.S. and Inyang, A.E., 2015. The effects of empathy and listening of salespeople on relationship quality in the retail banking industry: The moderating role of felt stress. International Journal of Bank Marketing, 33(6), pp.692-716.
Klikauer, T., 2015. Public finance, the financial industry, ethics and efficiency. Journal of Economics and Public Finance, 1(1), p.10.
Kolk, A., 2016. The social responsibility of international business: From ethics and the environment to CSR and sustainable development. Journal of World Business, 51(1), pp.23-34.
Michaelson, C., Pratt, M.G., Grant, A.M. and Dunn, C.P., 2014. Meaningful work: Connecting business ethics and organization studies. Journal of Business Ethics, 121(1), pp.77-90.
Ogbari, M.E., Oke, A.O., Ibukunoluwa, A.A., Ajagbe, M.A. and Ologbo, A.C., 2016. Entrepreneurship and Business Ethics: Implications on Corporate Performance. International Journal of Economics and Financial Issues, 6(3S).
Pérez, A. and Bosque, I.R., 2015. How customer support for corporate social responsibility influences the image of companies: Evidence from the banking industry. Corporate Social Responsibility and Environmental Management, 22(3), pp.155-168.
Pérez, A. and Rodríguez del Bosque, I., 2014. Customer CSR expectations in the banking industry. International Journal of Bank Marketing, 32(3), pp.223-244.
Prasad, N., Kumar, V. and Kapoor, S., 2017. Business Ethics: A Decision Between Right or Wrong. Journal of Public Policy & Environmental Management, 1(1), pp.20-30.
Trevino, L.K. and Nelson, K.A., 2016. Managing business ethics: Straight talk about how to do it right. John Wiley & Sons.
Ward, S., Killingsworth, S., Leigh, A., Meyer, A.S., Van der Heyden, L. and Weights, P., 2015. Ethics in Business. Business Compliance, 4(3-4), pp.75-91.
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