ETHICS IN THE BANKING INDUSTRY PART 1

The aftermath of the financial crisis saw a decrease of trust and confidence by the public towards all financial institutions. In an effort to alleviate public concerns and trust, banks took a second look at insuring up to date regulations to financial system and enhancing stability. However; in order for these changes to benefit the public, they have to focus on the financial user and society.

“Policymakers and regulators need to evaluate financial markets according to real outcomes such as: access, safety and resilience, fairness and integrity, performance and efficiency, redress and accountability, and trust and confidence.”

SOURCE: OECD Journal: Financial market trends.

Due to all these changes in financial markets, leaders around the world embrace new ideas and the widespread focus on ethical practices. During a G20 meeting in 2010 some of the following topics were discussed to create awareness about the use of ethics within the banking system:

DISCLOSURE AND TRANSPARENCY

In order for Transparency to take effect in the banking industry, disclosure of all resources must be made available. This will help the financial user make an educated decision about the services of the bank. A great example of this process is how banks handle “runs” (When a lot of depositors withdraw their funds from a bank). The user will either base the run on efficient or inefficient resources; this all depends on how the bank chooses to disclose information to the public. 

The following diagram focuses on bank runs:

 

In an effort to make transparency more efficient, banks need to start disclosing more information by providing all the facts, whether or not they have a negative or positive effect on the consumer. If banks are efficient in the way the handle situations or provide information, this will spread the right ethical idea and in turn it will promote Transparency and trust.

WHAT MADE YOU QUESTION A BANKS TRANSPARENCY?

Because this topic is so complex I will break it up into several postings, coming up next is……..

RESPONSIBLE BUSINESS CONDUCT

REFERENCES:

Wehinger, G. (2013). Banking in a challenging environment: Business models, ethics and approaches towards risks. OECD Journal.Financial Market Trends, 2012(2), 79-88. Retrieved from http://search.proquest.com/docview/1355886335?accountid=3455

 

Semenova, M. (2012). Market discipline and banking system transparency: Do we need more information? Journal of Banking Regulation, 13(3), 241-248. doi:http://dx.doi.org/10.1057/jbr.2011.21