What Happens During the Banking Crisis - Assignment Example

Ethics Question 1 1.1 During the banking crisis, a number of interested personalities suffered key among which included the bank’s customers, the government, and the banks themselves. These three constitute the greatest stakeholders affected by the financial crisis. Banks are business ventures set up to operate in money management, the financial crisis had a direct implication on the banks business resulting the closure of many banks while nearly all made losses over the period. Another group of people affected by the financial crisis included the banks’ customers. Nearly every citizen in the developed world is a customer to a bank or two. Banks are used in nearly every aspect of human lives, some apply for bank’s mortgages, while others apply for assets financing from the banks, and the payment of salaries through bank accounts heightened the need for everyone to operate a bank account in the country. The crisis therefore directly affected nearly every citizen. Whenever a bank makes losses, it does so with other people’s money in it, most banks used their clients money top run business and make profit, in a crisis such as the one experienced in 2009, most of these money therefore get absorbed up in the crisis resulting in direct losses to the very unsuspecting customers. The final major stakeholder in the financial sector is the government, who acts as the moderator in every crisis. The populace, in an attempt to coordinate the operation of activities especially in a democratic society, forms governments; some of the activities coordinated by a typical government include the financial stability of a country. The country must have enough currency floating within its economy to enhance governance. However, when banks make losses most of the citizens lose faith in the banking sector, which results in the closure of bank accounts as, was experienced in the United Kingdom. This results in governance crisis since the economy fails to have enough money circulating at any one time, the lack of money circulating results in a series of negatively implicating activities most of which would eventually ground the operations of the government. Given this understanding, the British government bailed out a number of banks that has made enough loses resulting in their clients lining up to close their bank accounts. Such occurrences could have stalled the English economy, the government therefore bailed out banks in the country by offering them a seventy billion pounds financial aid. 1.2 The occurrence of the financial crisis especially in the United Kingdom was purely a managerial issue. The number of banks has increased in the country, this followed the effective and substantial growth in the economy, when the economy becomes liberal, a majority of players comes on board to try the new business opportunities. The resulting competition made the business environment marked with a lot of uncertainty. Every business venture needed customer; they needed business to stay relevant to the market. Banks thus began the packaging of different products key among which was loans. Mortgages, asset financing and basic loans became very easy to access as most of the financial institutions relaxed their terms of borrowing. As more citizens and clients thronged tge banks for loans among other financial services, it was eminent that very soon the country would hit a financial snag. The banks had greatly relaxed their terms and conditions, getting a loan from any bank thus became a child’s play. The English market is one of the most aggressive in the world. They thus applied for loans from the banks sighting different reasons most of which the banks never ascertained their credibility. Most of the loaned customers had poor loan payment histories, which unfortunately the banks did not bother to look into. Most of the loaned customers began defaulting; some became unreachable resulting in a definite loss for most of the banks. This was a financial crisis in waiting, the economy plunged into bankruptcy which it had feared all along. Such bankruptcies taint government images in the international community. The government should therefore formulate stringent legislations to govern business in the financial sector country. Among some of the sectors that need effective legislation include the starting up of such businesses. The government should ensure that all private sectors setting up in the financial industry meet a number of requirements to ensure a validity of operation. Allowing weak businesses to set up in the country is to take a risk too big with the civilians’ money. Such businesses begin operation thereby flooding the market, to stay relevant, they run a number of promotions and offers thereby spoiling the market for the other more established business ventures. In the previous financial crisis, the private companies spoiled the market by having various banks, which for the sake of staying operationally vibrant reduced the lending rates, and flaunted the rules of business operations thereby forcing other older more experienced players to revise their operations to stay relevant. This way, loaning regulations were flaunted and the interest rates lowered. The result of such uninformed measures was the grave financial situations. It thus becomes right to claim that the sector requires moiré effective legislations. 1.3 The United Kingdom banks did not act ethically in their operations. Banks are business ventures, which imply that they exist to make profits, in such a set up every outlet is viewed as an independently existing institution responsible for its own activity. However, the activities of one single institution affect all other players. In such a set up every outlet should operate in constant consultation with other banks, this explains the relevance of associations. A bank may opt to lower interest rates and revise its loaning regulations, in doing this, such an institution should consult others to gather experiences and weigh possible outcomes. The degeneration of the crisis from a banking affair to an entire economical slump down reveals that no bank should try existing semi autonomously; unfortunately, the banks understood such possible implications but still proceeded to act selfishly by instituting regulations that would have benefited individual banks. In a fair market such as the one in the United Kingdom, every business is free to employ whichever mechanism to woo customers. Ethical business practice mean that a business venture keeps its operation relevant to the stability of the economy. Acting selfishly is a means of fostering self-interest and not that of the entire nation. Individual banks devised plans and mechanisms for gaining more market share by lowering the interest rates and revising the loaning regulations, which came into play despite the clear understanding of the possible outcomes. When the economy began to stall, the smaller selfish banks became the first to wind down operations and close their doors from the market, clear indication that independent selfish actions largely affect their inceptors. Price is a tool of trade, one manipulated by businesses to gain more mileage and recognition from the market. Businesses set up their prices with their competitors in mind, in as much as the price of a commodity should be low, a business must consider the possible impact that low prices have ion the operation of the players in the market. By lowering the lending rates, some of the banks acted on self-interest, they thus earned little profits with a belief that they would get more customers, when this failed to materialized, the banks ended up with more losses than they had anticipated. Most of these loss fizzled out into the greater economy thereby affecting even the innocent community, which could not have held bank accounts. Additionally, flaunting the rules of engagement is unethical; banks have similar laws regarding the acquisition of mortgages and other types of loans. A bank always retains collateral whose cost should be nearly similar to that which the client borrows. This way, the bank becomes immune to loses. In as much there could be differences in structures of the different banks, such laws apply universally to all the players in the sector. Changing such laws and allowing clients access loans without any form of collateral allocation or disposition, is an outright act of selfishly changing the rules to suit self interest which is unethical in every aspect. 1.4 The resulting financial crisis bore a number of clashes or right some of which prompted the government top act by pumping billions of pounds into the economy. The citizens have the right to protection from exploitation. The government must protect her citizen from any form of exploitation; weaker economies exploit citizens thereby making them more vulnerable. A government must ensure that the economy is stable, that prices of commodities are regulated, and that no instance of exploitation arises. Furthermore, when the banks finally closed their doors from the market, they did so with their clients money result in direct theft of private property. This is an outright infringement on the rights of the citizens. To curb this, the government interjected seventy billion to refund the unsuspecting civilians from their losses. Additionally, citizens are free citizens enjoying the rights to set up any business that they so deem necessary. In doing business, one is free to run his or her business as they so feel. However, this right of possession and of decision making gets to clash with the prevailing market forces and the ethical and moral provisions. Private investors have different interests on the market. Such personalities require different things from the market and have different priorities for the goods and services they seek to offer. They must not therefore operate on any preconditioned terms of operation. One is free to set his or her own terms and gain that which he or she wants from the market. This explains the relevance of a number of banks in the English market some of which include the Islamic financial institutions, which operate on entirely different regulations. Such regulations affect the general outlook of the market but the government has no obligation to impose its rules and legislations in such matters as the amount of interest are on which banks should operate. This provision applies in the backdrop of the common knowledge that such regulations and freedoms resulted in the ultimate slump of the entire economy. 1.5 Ethics refers to the ability to determine right and wrong and separate bad from good. There is no basic standard of these thereby making them relative. One cannot therefore impose such definitions on other. However, the ethical decisions affect the morality of the society. Choosing to lower the lending rates could be ethical depending on how an investor looks at the entire process. An investor can choose to argue that he or she was attempting to shield the customers from exploitation, which in fact is not only ethical but also humane. However, failing to consider the interests of other market players and the possible outcomes of such selfish acts is immoral and look a lot more selfish. Morality dictates on such virtues as honesty, respect for others and concern for others. Every ethical decision that one makes therefore in one way or another must include the interest of others, this shows concern for others thereby adding a lot of relevance to the decision. Just as stated earlier, good or bad, right or wrong are relative terms whose definitions vary from person to person. However, a decision that is humane but also considerate of others will be considered good and right by a majority of both the clients and fellow businessmen thereby earning more morality and proven more ethical. Question 2 Barclays bank is one of the greatest banks in the United Kingdom. The company runs a number of social co-operate investing programs. Such programmers are geared towards helping the community on which the business operates. These are also informally referred to as giving back to the community, the argument being that businesses exist in societies and profit a lot from the society, it is therefore advisable that the businesses run certain programs that are beneficial to the society in one way or another. Additionally, these programs are used as means of improving the brand visibility and endear to a particular group. This way, the business venture widens its market share, as more people who are possible future clients know it. Showing compassion to destitute children by providing them with accommodation is an act that would draw the affection of Christian and humanitarian organizations most of whom thereafter transacts business deals with the organization. This way, the business venture benefits from the social responsive investing as its is also referred to, social responsive investing therefore act as possible advertising expeditions (Abrams & Eugene,2003). Barclays run a number of programs that target the poor in the society, it runs scholarships programs in which very bright students access schools fees to enable them complete their education successfully. A number of needy students across the country have benefitted from the Barclays scholarship with most of these students perusing degrees in banking and the financial sector. Most of these eventually find jobs with the bank. A majority of such students is destitute or orphans recommended by friends or other members of the society. Additionally, the bank runs free medical check in conjunction with other health service providers. Briefly, Barclays believe in the creation of a literate and disease free society, it thus centers most of its social responsive programs on the two sectors. Reference Abrams, R.& Eugene K. (2003). The Successful Business Plan: Secrets & Strategies. 4th ed. Palo Alto, Calif: The Planning shop. Read More