Banking Industry Meltdown: The Ethical and Financial Risks of Derivatives - Case Study Example

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The banking industry would have benefited a lot from the use of the ethical theory called utilitarianism. “Utilitarianism a moral theory according to which an action is right if and only if it conforms to the principle of utility” (Mautner). This philosophy is based on making decisions to benefit the greatest amount of people…
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Banking Industry Meltdown: The Ethical and Financial Risks of Derivatives
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Download file to see previous pages A lot of these decision makers forgot that their efforts are supposed to be aligned with the mission of maximizing shareholder’s wealth. Making a bank bankrupt is the worst potential outcome since it hurts the shareholders, employees, the economy, and the entire business community. The white collar crimes committed by unethical individuals differ from blue collar crimes because white collar crimes are mostly of financial nature and are non violent crimes. Blue collar crimes include serious offences such as murder, rape, and treason. White collar crime includes a variety of frauds, schemes, and commercial offenses by business persons, confidence men, and public officials (Answers, 2011). The massive economic damage that white collar crimes can cause has raised the government penalties for these types of crimes. The Sarbanes-Oxley Act of 2002 raised the penalties for executive managers involved in fraud up to 20 years in prison. The prison penalties for white collar crimes have become as severe as most blue collar crimes. People should protect themselves in the internet by not responding to spam email or signing up for any quick rich schemes which are commonly used for frauds and other serious white collar crimes such as identify theft. ...
The personal decision of cheating on taxes is visualize as a less harmful crime than a person that kills a civilian during a shootout with a rival gang for control of the heroin trade in the neighborhood. In our society one of the places in which white collar crimes are on the rise is in the internet. The organizational culture of these banks influenced a lot in the decisions made by its leaders. Organizational culture can be defined as the system of shared actions, values, and beliefs that develops within an organization and guides the behavior of its members (Shermerhorn, Hunt, Osborn, 2003). The CEOs of these firms acted irresponsibly because they did not considered the consequences of their risky decisions. A common trait in all the corporate cultures of these banks is that companies did not have a participative power structure. The power in these types of structures is fragmented and decisions such as how much to invest in derivatives would be taken by committees instead of single employees that have excessive power. In the UBS case a culture of deception and ethical behavior spill over in the practice of the firm as employees were facilitating tax evasion by moving money into offshore accounts. A way that leaders in the banking industry could have prevented the financial meltdown was by implementing more strict internal control protocols. The banks should have implemented routinely risk management audits performed by external consultants. I think the executives of the company should have promoted and rewarded the action of being a whistleblower to protect the company. Most employees feel that they will lose their jobs if they become a whistleblower and tell the authorities about ...Download file to see next pagesRead More
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