A Detailed Report on Banking: Personal and Organisational Ethics

This report provides a comprehensive analysis of banking ethics, encompassing both personal and organizational ethical considerations. It begins by applying Kohlberg's theory of moral reasoning to evaluate decision-making processes within the banking sector, specifically in the context of loan applications. The report then delves into the ethical issues that can arise, along with their potential consequences, and explores resolution strategies. It examines the role of business models, such as that of Northern Rock, in financial crises and discusses the failures of regulatory authorities. The report also addresses the significant changes implemented to protect customers since 2007. Furthermore, it explores potential conflicts of interest and how these should be managed under current regulatory requirements, as well as the essential features of legally valid and binding contracts within the banking industry. The report concludes by summarizing the key findings and emphasizing the importance of ethical conduct and regulatory compliance in the banking sector.

Banking: Personal and
Organisational Ethics

Table of Contents
INTRODUCTION...........................................................................................................................1
ASSESSMENT 1.............................................................................................................................1
a. Kohlberg’s theory of moral reasoning to critically evaluate William’s decision making
process with regard to the loan application..................................................................................1
b. the main ethical issues, consequences William’s actions could potentially cause and
resolution of issues. ....................................................................................................................2
ASSESSMENT 2.............................................................................................................................3
c. Northern Rock’s business model played a pivotal role in the bank seeking emergency
funding.........................................................................................................................................3
d. Main failures of the UK regulatory authority..........................................................................3
e. Significant changes have been made to protect customers since 2007 ...................................3
ASSESSMENT 3.............................................................................................................................4
a) Given this scenario, examine the possible conflicts of interest that may have arisen and how
these should have been managed by the bank under current regulatory requirements................4
b) Discuss the essential features of legally valid and binding contracts......................................4
CONCLUSION ..............................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Ethics are the combination of different code of morals practiced by an individual or group
of persons. There are two types of ethics in banking which are personal & organisational ethics.
In banking sector there are various rules and regulations which are associated with it and these
are needed to be follow. The government and the central bank provide various policies and
regulations in context to ethics. There are following topics which are covered such as: Kohlberg's
theory of moral, ethical issues, Northern Rock's business model and to examine main failure of
the UK regulatory authority. Apart from this it also discuss about the possible conflicts of
interest and essential features of legally valid & binding contracts.
ASSESSMENT 1
a. Kohlberg’s theory of moral reasoning to critically evaluate William’s decision making process
with regard to the loan application
Kohlberg's theory was propounded by Lawrence Kohlberg in 1970s. This theory is a
psychological theory which helps in explaining moral developments. It is used at the time of
justice while making moral choices (Asah, Fatoki and Rungani, 2015). Such theory helps in
describing the moral reasoning as well as ethical behaviour. It includes three levels which are the
following:
 Pre-convectional level: This level is mostly common in children but adults also goes
through such stage. By understanding different consequences decisions are taken by
considering the morality of any action. The conventions are related to what is right and
what is wrong. The two stages are the followings:
Obedience and punishment driven stage: People focuses on the direct implications of the actions
performed by themselves.
Self interest driven stage: People judgements are taken as the best decisions and do not consider
the reputation and relationship.
 Conventional Stage: Such stage posses between adolescences and adults. Here,
comparisons are made between society views as well as expectations. In this, the
judgements are accepted considering the rights and wrongs for the society. Following are
its stages:
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Good intentions as social consensus stage: Social standards are considered for approval and
disapproval as society views are reflected. People try to be good girl or good boy in front of
others (Biller-Andorno and Capron, 2016).
Social order and authority obedience stage: Laws and social conventions are obeyed as they are
important for maintaining functionality in society.
Post conventional level: It is principled level. Moralists believe on the ethical principles and
considers rules as changing mechanisms. Following are its stages:
 Social contract driven stage: The views, opinions and values are respected of different
people in the society. Various laws are governed which are mandatory to follow.
 Universal ethical principles driven stage: It stats that universal ethical principles helps in
justice and commitments. It involves the imagination of individuals based on right or
wrong.
Thus, William decisions were based on his personal justifications regarding what is right and
what is wrong for sanctioning the loan application.
b. the main ethical issues, consequences William’s actions could potentially cause and resolution
of issues.
The ethical issues were related to the affect of value of the portfolio. The image in the
market related to product portfolio of investment will be affected. The another issue was related
to the losing the invested money. No person wants to lose the proportion of amount invested in
any business (Kashif, Zarkada and Thurasamy, 2017). The same was with the William. He
wanted to earn more money for his son education.
The consequences of William decision could cause delay in sanctioning loan which can
cause great loss to the start-up pharmaceutical research & development company. The
organisation has much expectations for getting the patent a new cutting-edge drug.
The William can resolve it issues by charging high interest from the company and can
earn more money from it. This will help in maintaining the image of portfolios as well as the
new drug could cause the company’s shares to rise dramatically.
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ASSESSMENT 2
c. Northern Rock’s business model played a pivotal role in the bank seeking emergency funding
Northern Rock's business model helps the banks in providing funds when other financial
institution denies (Northern Rock, 2007). It is a combination of large number of small regional
societies who deals with savings and mortgages. They provide emergency funds to various
organisations. By managing severe as well as uncertain risks by restoring the liquidity. Such
business is successful in building their product portfolio as well as raise the funds from markets
for the purpose of financing mortgages. They issues asset-backed securities to the banks. By
successfully operating the strategies and plans prescribed the banks can successfully able to
enhance their lending in successful manner. They helps banks to successfully build their
portfolios for operating in the market smoothly and providing the required funds available on
time. The borrowings of such institution remains creditworthy. They provide the emergency
funds on high interests and gain advantage by maintaining the reputation in the market. The
personal savers are provided minimum interests. Hence, Northern Rock’s business model played
a pivotal role in the bank seeking emergency funding.
d. Main failures of the UK regulatory authority
UK regulatory authorities have faced various failures. One of them is the competition.
There is immense competition among the financial institutions. There are many banking
institution who performs operations where as some of them have the complex monopoly of
providing service in the market. Different banks provide services by charging no or minimum
interests on the savings. Another cause of the failure is the high switching of the customers.
Customers switch to another banks if they do not get the expected services or interest. UK
regulatory authority fails to satisfy its customers by understanding and providing the demanded
products or services accordingly. There are various banks who offer similar services with better
profits to the customers. Another reason for the failure is the instability. The regulatory authority
has no stable financial position (Lagan and Moran, 2015). Any customer before securing its
money focuses on the stability of the financial institution.
e. Significant changes have been made to protect customers since 2007
Various changes have been made to protect the customers. The customers are provided
provisions of two step verification before performing any activity. For transferring the funds,
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they have to use the one time password for transferring funds. Various several provisions and
legislations are also governed such as consumer protection act, the banking act and many more.
The customers are provided security against any malpractice an fraudulent activities. They can
file cases against the person or organisation or institution who affects them. General data
protection regulation helps in protecting the data and information of the customers against
getting leaked (Kurki and Wilenius, 2015).
ASSESSMENT 3
a) Given this scenario, examine the possible conflicts of interest that may have arisen and how
these should have been managed by the bank under current regulatory requirements
Conflicts is the situation where the two or more parties does not agree on the same
subject matter. Than the situation of conflicts can be arise between two or more persons. As the
scenario there is a conflicts which appear because of commercial mortgage property portfolio. As
the German bank says that commercial mortgage property portfolio is require to be minimise
because of the high risk in the market. As well as the outlook of commercial property market is
negative in UK. These are the suggestions are provided because of more risk and chances of
losses are very high. So to reduce the risk portfolio is needed to be diversified so that chances of
loss will be reduce. But the head of portfolio management has decided to ignore the advise
because they want more return. They believe that if there is higher risk than there is more
chances to generate higher profits (Nguyen and Rowley, 2015). So this can be the reason of
conflicts because head of portfolio management want to take risk and want to use the funds to
build up the portfolio have been taken form separate client investment accounts.
b) Discuss the essential features of legally valid and binding contracts
A contract is an agreement which occurs between two or more parties and it is
enforceable by law. There are various features of legally valid and binding contracts are as: Offer
and acceptance, there are two parties in a contract in which one party gives the proposal which is
the offer and the other party have to accept it as the same it offer is provided. There are certain
terms and conditions are associated with it and it is require to be follow. It is known as
agreement (Biller-Andorno and Capron, 2016). The other feature is to create the legal
relationship among the parties which bind the parties to remain in the contract and perform their
roles as per the requirement. The another feature is lawful consideration which emphasis on
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different factors such as: cash, goods, act, abstinence and every contract should be supported by
consideration & it must be valuable. The meaning of contract is require to be certain and it is
require to be perform as per the rules and agreement. A contract is an agreement which is
enforceable by law and it is require that subject must be lawful and valid otherwise the contract
will be illegal. The parties are bound to perform there roles which are created by law so that all
criteria of contract will be fulfil as per the requirement so these are the main features which are
related to contract.
CONCLUSION
As from the above report, it has been concluded that to follow the ethics are important
because there are various code of conducts are related to it which are require to be consider. In
the banking sector personal and organisational ethics are formulated by the central bank and the
government of that country. As Kohlberg's theory of moral is require to be consider while taking
decisions in context to loan application. Northern Rock's business model is needed to be consider
for pivotal role in bank seeking emergency funding. There are various conflicts which are arises
in the corporation and it should be resolve. As the contact is an agreement which is require to be
perform and there are various features which are related to it and it bind the parties to fulfil their
obligations as per the agreement.
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REFERENCES
Books and journals:
Asah, F., Fatoki, O. O. and Rungani, E., 2015. The impact of motivations, personal values and
management skills on the performance of SMEs in South Africa. African Journal of
Economic and Management Studies. 6(3). pp.308-322.
Biller-Andorno, N. and Capron, A. M., 2016. Ethical issues in governing biobanks: global
perspectives. Routledge.
Kashif, M., Zarkada, A. and Thurasamy, R., 2017. The moderating effect of religiosity on ethical
behavioural intentions: An application of the extended theory of planned behaviour to
Pakistani bank employees. Personnel Review. 46(2). pp.429-448.
Kurki, S. and Wilenius, M., 2015. Organisations and the sixth wave: Are ethics transforming our
economies in the coming decades?. Futures. 71. pp.146-158.
Lagan, A. and Moran, B., 2015. Three dimensional ethics: Implementing workplace values.
Routledge.
Nguyen, B. and Rowley, C., 2015. Ethical and social marketing in Asia. Chandos Publishing.
Online:
Northern Rock. 2007. [Online]. Available through: <https://www.open.edu/openlearn/money-
management/money/accounting-and-finance/finance/northern-rock-business-model-
unravels#>
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