Banking Sector and Ethical Issues Nowadays

Banking Sector

Some specialists investigated modern banking sector. Here are the results of their researches.

Goyal and Joshiin (2011) suggested that people are aware most of the issues concerning our environmental and hazardous effects of factories and manufacturing industries. Researchers found that an organizations need to adopt sustainable and feasible advantage by creating ecofriendly products, which does not harm environment and our society. Banks can show their good intention towards society and environment by giving loans to those organizations who wants to create ecofriendly products, or work as ethical or socially responsible or wants to help society as non-profit organizations or who have good intentions towards society. However, it could affect the economic development and industrial growth but our environment and society does not afford this development at the cost of the environment depletion.

Green (1989) have discussed about corporate ethical responsibility in banking or business perspective however corporations do have some responsibility towards society means work as an ethical organization. A company’s status and their works recorded and observe their ethical work, it can affect companies image and it can make sure that their businesses success or failure because it depends on their work nature. However, all financial corporations have some bad history of placing their interest against legal methods. Sometimes companies exposed to their corruption, and it affects their image and their business.

Winbladh (2014) wants to describe the importance of ethics in business and relating it with the law. According to author, financial intermediaries must preserve to instructions of regulation, industry values and perform morally. In his research they have describe the questions for example what do you think why financial institutions needs to work on ethical standards or needs transparency in their institution? He also asked, why do we need to measure ethics in businesses or ethics towards the customer’s? Alternatively, ethics towards employer or employee and the society, he also tries to look financial service aspects on ethical services towards stakeholders. Their research covers ethical values in financial industries and stakeholders view on current performance as well as tendencies.

Cowton (2002) gives an introduction to the concept of what is frequently describing as “integrity, responsibility and affinity” these are three aspects of ethics in banking and finance. Banking, is common with other areas of financing it is often measured an unethical field focused purely on risk and return. However, ethics does have a vital role to play both traditional businesses and banking progress. Based on a speech to a European Union conference on financing small and medium–sized enterprises (SMEs), their research is to provide an overview of ethics in banking using three terms.

Clerck (2003) describing essentials of economical financial crisis, certain period of time, specifically of banks, and the weakness of moral values in design and selling of complex monetary products, decision making process is short term perspective of firms. An ideal name of ethical bank is financial facilities. In his context, demands are increasing of transparency, sustainability and corporate social responsibility.

Belás (2012) aim of his research is to examine the public framework of the baking industry and defining the qualities of CSR and moral values of ethical banking. Authors display his research result on ethical mindsets of banking employees. Purpose of financial institutions and banks is built on market values, they are operates by the funding of others. Lack of ethical standards revealed on the time of financial crisis occurs. In commercial banking, public beliefs changed because of crisis. An ethical principle needs to be applied because these crises increased the force to apply, and that indicate the proper supplement for financial rule. According to his research, he stated that this paper work for enthusiasm for society and economical values and he stated that it is possible to generate profit without hurting social and economic values.

Tischer (2013) investigates how the ethical banking sector embedded in the financial services industry and draws out political-economic dynamics that facilitate as well as hinder the development of the sector. To this end, the thesis develops a conceptual framework that draws on literatures on industrial districts and embeddedness. The thesis also models and analyses the ethical banking network using social network analysis, previously author develops an understanding of ethical banks business models and how the sector organized within the banking industry. Data on the banks relationships with other organizations collected through questionnaires and interviews had conducted with respondent firms to explore ethical banking as a sector from the perspective of ethical banks themselves. In addition, company, industry and legislative publications analyzed to add context and validate findings.

Benedikter (2011) is defining the role of the private sector and financial institutions in particular, and how it is an important role to create a world, which is truly sustainable. Many organizations are working in which non-governmental organizations (NGOs), ethical depositors, consumers, rational, leading and international businesses are working to formulate or create a triple bottom line of a reality which is (profit, people and planet). Authors paper is an introduction of an idea which is frequently described as “moral, social, environmental, solidarity or alternatives etc.” banking and finance. The commercial banking made values of mainstream poorly developed at their core business in which they specifically characterized by values focused and performs. His research gives an overview of this field where he show modern world pioneers how they put themselves as historical context. Author gives some examples of bank who works as an ethical bank, which has ethical point of view and have high hope for ethical and sustainable world.

Ethical Goyal and Joshi (2011) defining the ethical issues in banking industry which can affect banks image and trust which can be fluctuated by the unethical behavior of banks or their activities. It consists of three parts in first part there is a historical background of banking industry. In the second part, authors explain the importance of bank and their nature of work, how it is associated to the country’s economic performance and financial system. Banking and finance play a vital and crucial role in framing public policies in today’s business environment. This article highlights the social and ethical issues of banking such as social banking, ethical banking, green banking, global banking, rural banking, and agri-banking, which helps achieving sustainable development of banking and finance.

Green (1989) discussing how ethical issues put an influence on dealing for the longer period. They have asked the first question is whether a company or like an individual has some ethical duty, If we thought about it, yes they have and he suspected that most people would accept that firms are ethical negotiators.

According to the author like any person, a corporation's actions can bring good or harm, means action can be beneficial or harmful. Companies are necessary to conform to the law and they enjoy the aids of legal protection. However, the inadequate responsibility status of a company not planned by society to give it protection from the consequences of immoral performance. However, this is only the formal situation. More positively, a corporation reflects the arrangement of its members and the attitude of its headship.

Winbladh (2014) concluded that non-compliance to best practices and the highest level of ethics is risky and may lead to huge fatalities including insolvency. The GIPS standard provides a good comprehensive framework which de-facto has become industry standard.

The main issue is not to make the instructions stricter but assure adherence and compliance to the morals established. Internal and external inspection and an obedience department/compliance officer needed to avoid fraud and other unwelcome unethical conduct toward their customers.

Carrasco (2006) defined relation between ethics and banking. In the first section, he defines the views and values of order of ethics. Moral conscience had been over and done after the individualist and serviceable analysis. However, many people instructed their behavior by a worthy system that is subtle to social problems, such as balance with nature, esteem of human rights, and the parity of opportunities.

Clerck (2003) describing the financial industry need to work for evolving and with conviction for the society to provide the finest in requisites of benevolence added appeal. As an ethical bank, banks have responsibility and mostly they expected to work for the society and civilization to create a world, which is sustainable and developed. Banks should use their finance to improve economy rather than making profit and become careless towards their responsibilities. If they want, they can start NGOs to help society and start micro financing, giving small loans to help young entrepreneurs, or give charity or organize charitable events. Currency, wealth, perceptively and intelligently invested as a mechanism for maturation and improved quality, social development has a great influence of these things. This impact is an unbiased boldness to financing and borrowing. In the finance market, money systems become motorized and developed overwhelming forces at work. Financial managers and establishments are anxious to the method, which avoid to minimizing risks.

Belás (2012) highlighted that in his he used analysis for his research, these analysis are on critical bases for the collection of data he used internal and external sources like questionnaires, surveys, forms, reviews and designed interviews. Authors use these journals for his analysis and discover the techniques for the economics with their collective structure and for ethical banking procedures, instead of typical journals of economics in the field of business related banks. Authors research focused on the banking management which is hard to approach from theoretical judgment. Author research has produced very interesting results in the area of improvement for banking employee’s performance and their work with the development to their customers’ needs in the financial sector of banking; it could lead towards an increase in banks economical accomplishment.

Ethical Issues

In Banking Industry Goyal and Joshi (2011) concluded that they have gone through a series of development that are taking place in current business scenario. Moreover, in the last part they analyzes the review of past studies on the theme. In conclusion they have discuss about the some important issues regarding environmental issues and increase in harmful influences of industrial development in the society. They have highlighted that the sustainability is important for organizations to adopt because it provides benefit by building ecofriendly, ecological or recyclable products for the society. If banks disburse their loans to the ethical and social businesses that have environmental concern, so they can project themselves as ethical bank. However, it is possible that it will slow down our growth of economy but humanity cannot allow this growth on their environmental, wildlife and earth’s natural resources depletion. It is way better for lending finance practice on the societal measure rather than generating profit alone. It is best time to focus on important issue regarding ethical banking industry however, it is possible to achieve by putting society interest over their interest.

Green (1989) concluded that banks needs to be trustworthy for their customers who trusts them to make sure that their money is safe and in good hands and they have a responsibility to use their money dutifully and lend it to the person who is responsible. Banking is an important segment of risk taking activities where you rewarded for ethical practices. The aid depends on customers’ to make succeed their business and to exhibit moral values. It’s expected from banks that, they will help people to avert their burdens and inducements. Responsibility of banks stretches towards the society, customers’, consumers, stakeholders, faculty, employees, staff and the government.

Winbladh (2014) determines in his study about the present compartment, principles and learning of the journals of his field. The properties of outcome will cover the ethical compartment of financial sectors. Authors is interrogating with giving ideas such as ethical ideas for advancement of society, and what stakeholders wants without consulting what we have today. His research proposals could lead industries to change their point of view consulting with the problem they have faithfulness and devotion.

Carrasco (2006) concluded in this section, they have discussed the behavior of society, in which society have always the power to change their state they always have that authority because they are consumers as well as investors. If people are investors, they have authority to select in monetarist marketplace, among establishments and products. Author summarizes his work for the economic tendencies, which perceive an ethical morality. Since his research designed to analyze the banking ethics attitude towards the customer preferences, it might give useful information about the ethics in the banking industry; this study provide the reasons for how the banks failed with ethics of banking industry and in reckless risk taking. One major cause of the financial crises was the banks’ lack of effort to have good ethics.

Cowton (2002) concluded that truthfulness is an important quality to build faith, it is essential for financial institutions to inaugurate. In ethical banking, they should try to avoid the lending penalties and work with the empathy, which will bring investors and borrowers closer to each other, which could not be possible in conventional or commercial banking. Responsibility, they have to use carefully the investment that they use as a loan, they should make sure that the loan should be utilize in appropriate or right way or use for some useful purpose for the society. At last affinity, they should understand the ethical or moral values of economic development or society. For the affinity purpose, they make some affinity credit cards, whenever this card used for the transaction a small amount of money donated to the charitable organization.

Clerck (2003) concluded that they have examine and equate the return on assets (ROA) and evenhandedness for over 5 years period of time for ethical and commercial banks recorded on ecological mark. Author did the critical analysis; he used a levelheaded data standard and unbiased purpose for his analysis. For the conclusion, he determines that rates of return are high for commercial banks, because if they take higher risk there is a chance of getting higher rate of return. However, if we compare ethical banks with the conventional banks we will find that ethical banks are more modest than conventional bank, as they associate with the conditions of existent system.

Villa (2003) defined in his research that bank play a very crucial and important role in economy and the field of all commerce. His research aims to examines those basis of ethics where banking practice features suitable for banking and bankers. Author also talks about conflicts of banks between its customers, fee structure, policies, insurance policies, lending and borrowing polices which plays a role of conflict of interest. His research examines the proof of qualitative interviews with high-ranking banker from different locations in the field of banking areas. There is critical situation to assign ethical catastrophe to American trainings that initiate disasters, which have overwhelmed proprietors and the worldwide economy.

Belás (2012) suggested that moral principles attempts to displays that the knowledge of business but in corporate it is not mutual. Evaluations of managements in firms it is unexpected to the self-controlling apparatus as corporates social responsibility to be operative for business ethics. Some specific commercial banks have marketing tool as useful which is ethics and their responsibility towards society which is considered as apparatus to cooperating with public from the perspective of bank management and it’s not combined with the conditions of banks. We have witnessed the crisis of financial industry which occurs because of deficiency of ethical values in different processes.

Tischer (2013) methodology consists of social network analysis, interviews and secondary data analysis. It explains why a mixed method approach is useful in exploring structural aspects and examining socio-political facets of the ethical banking sector. Whilst overwhelmingly pragmatic in nature, the chapter will also discuss how the simultaneous collection and analysis of data has informed later cycles in the research. It outlines the research process and highlights how problems faced and dealt with. Moreover, it focuses on how the triangulation of data benefits this research by stimulating a critical engagement with sometimes-contradictory evidence.

Benedikter (2011) highlighted that funds can be differ on the mentioned terms such as culture values, products, clients interest and accents on the private and public banks, ethical and sustainable banks, environmental banks and social banks, they all have same mission to perform banking practices and investment for the societal development. There is a difference of complementary qualities it can be productive in the grouping.

According to author, these banks are doing their contribution to the society and work for the innovation in financial system. Banks are those institutes, which lend and borrow money on some interest, as we know that banks are playing very important and crucial role in country’s economy. Banks have built a very strong image around bank accounts with the help of their security, protection, and safety. They have make sure that the customer transactions will be secured and they have sending a message that physically transactions is unsecured but through banking it is secured and reliable. In unfortunate events people can loss their money but banks assured them that their transaction are safe and even banks give them interest on their amount of money. But there are some ethical issues appearing when bank borrows and lend money from creditors. While using creditor’s money they got some responsibilities as well.

Nowadays banks are only working for their interest or generating profit while making profit they took overstep on their principles and neglect their responsibilities as a corporation they have, they does not care about the moral values of society. They just invest where they get large amount of profit, but there is some ethical issues appears when they make investment. Because banks does not care what will happen to the investment that they made. It has discovered that every year over 100,000 people goes bankrupt as well as bank goes bankrupt too, because investee’s are unable to pay their loans to banks as well as bank is also unable to pay its funds to its clients. For example, if banks lend money to a person on some fixed amount of interest but if that person gives another person that loan on some higher interest and 2nd person again forward that investment to another but what will happen if that 3rd person goes bankrupt in this chain than it means all lenders goes bankrupt too. That is the common example of bankruptcy but we have found that banks got so much power because they can create money from thin year and they can manipulate the power of money through inflation.

In most of the cases it is found that many biggest banks or well-known banks are involved in some kind of scam, fraud, scandal or in some illegal activities. It is possible to reduce or eliminate these issues and banks can be better. If they start working as an ethically responsible, many banks have realized in developed countries the importance of ethical banking. If banks start focusing on their work, act with prudence, loyalty and care, client’s confidentiality, investments must be made with the customer’s approval. Fair dealings while making investment analysis, suggestions and taking investment actions. Must extremely supervise or check the dealings or fair trade between customers to avoid fraud or scam. Investors must put pressure in banks to make them must follow the actual principles of ethics. They should pay attention on their investment that how is being used to the implications it has and make some strict ethical criteria to handle their investments.