Reassessing the Ethicality of Some Common Financial Practices

Abstract

Abstract:Depositors have perceived banks as acting unethically during the most recent recession. One area of consternation is the ambiguity of the legal obligations entailed by the deposit contract when it is backed with only fractional reserves. In this article we apply an existing analysis of the legitimacy and ethicality of banking practices to a wider range of financial transactions, including insurance policies, securities lending, perpetual bonds and callable loans. Securities lending in particular creates rights violations analogous to those in fractional-reserve banking. Both callable loans and perpetual bonds have clear legal obligations which are not inherently problematic, though we herein clarify what these obligations are. Finally, we apply our ethical framework to demonstrate that insurance products are distinct from banking deposit contracts, and that perceived parallels between the two products underestimate these differences.

Does Dual Banking System in Indonesia Differentiate Investment Account Requirement?

“…Fractional reserve banking system has been commented negatively by some economist from Austrian School of Economic. It is a risky behaviour that has been done by banks and considered as unethical behaviour (Bagus and Howden, 2012;Bagus and Howden, 2009;Bagus and Howden, 2011;Bagus, Gabriel and Howden, 2016;Bagus and Howden, 2010). Fractional reserve banking system treats money as a commodity rather than the medium of exchange (Hulsmann, 2003;Hulsmann, 2004).…”

“…Unfortunately, the epistemological error happens and the banks are now using the theory of irregular deposit rather than regular deposit ( Bagus, Gabriel and Howden, 2015;Bagus, Gabriel and Howden, 2016;Barnett II and Block, 2009;Nair, 2013;De Soto, 1998;Syamlan, 2016). The fallacy of the deposit theory not only happens in conventional banks but also in Islamic bank.…”

Gender Biases in Bank Lending: Lessons from Microcredit in France

“…Alesina et al (2013) and Agier and Szafarz (2013a) show that female micro-entrepreneurs receive smaller loans than male ones in Italy and Brazil, respectively. More generally, Bagus et al (2015) discuss the ethicality of banks' actions. 3 According to Field et al (2014, p.10) "much of today's microcredit arrangements bear little resemblance to loans offered by organizations such as the United States Small Business Administration (SBA), which are also designed, ostensibly, to support the kind of entrepreneurial risk-taking necessary for success."…”

Social Banks

“…A number of authors have examined the potential causes of the lack of ethical behavior in banking, and a number of specific remedies have been proposed to create a more ethical culture in "conventional" or "mainstream" banks (e.g., Paulet et al 2015;Bagus et al 2016;Herzog 2019;Zaal et al 2019). This research is part of a growing body of evidence on the role and importance of culture in banking (Group of Thirty 2018).…”