Ethics in banking
A series of financial crisis that jolted the world economy over the past fifteen years or so has raised serious concerns about unethical conduct in banking operations. Regulatory authorities around the world are struggling to formulate reform measures to prevent recurrence of such malaise. Any discussion on the subject of ethics in banking inevitably requires some elaboration of what is understood by ethics, what are the functions of a bank and the interface between them.
Meaning of ethics in the present context: Ethics has been defined as the study and philosophy of man with emphasis on the determination of right and wrong and also as the basic principles of right action, moral principles, moral philosophy etc. The word ethical has been variously interpreted as morally correct, honourable, decent, fair, good, honest, just, noble, principled, righteous, upright, virtuous and so on. This brief taxonomy suggests that it is not easy to precisely delineate the scope of ethics.
Academicians have written volumes on the interpretation of ethics espoused by great philosophers as Aristotle, Kant, Bentham, Mill etc. I am inclined towards Jeremy Bentham's and John Stuart Mill's utilitarian view of ethics. Simply put, this implies the greatest good for the greatest number. It is from this perspective that I will try to deal with the issue of interface between ethics and banking.
Principal functions of banks: Banks perform four principal conventional functions. The first relates to intermediation. Banks serve as intermediaries between savers and investors. They mobilise savings from the members of the public in the form of deposits and make these savings available to those who are willing and able to make investment in the real sectors of the economy or to engage in trade which serves as the conduit for distribution of the produced goods and services to consumers and users of these goods and services. The second function involves maturity...