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Ethics on Banker's Bonuses
1. PRESENTED BY:
PIERLUIGI FERRARO
SEBASTIAN HOCKADAY
HARRY THOMAS
ELOUISE WAREING
BKEY 402 – BUSINESS CONTEXT
PROBLEM 4
GROUP 4
2. SUMMARY
BACKGROUND
IMPORTANCE OF BANKS IN THE BRITISH ECONOMY
WHY BANKS HAVE FAILED
ETHICS OF BANKING
ECONOMIC PERSPECTIVE WHETHER IN THE FUTURE A FAILING BANK
SHOULD BE ALLOWED TO FAIL OR SAVED
WHY DO THE BANKS NEED TO BE REGULATED
HOW BANKS SHOULD BE REGULATED IN THE FUTURE
ISSUE OF BANKERS BONUSES
CONCLUSION
4. RETAIL BANKING
High Street Bank Savings
Large Amount of Customers Personal Loans
Small Amount of Money Mortgages
Lots Of Branches Credit/Debit Cards
5. INVESTMENT BANKS
Small Amount of Customers Personal or Corporate
Large Amount of Money Funds Managing
No presence on High Street Advice on Investments
Merchant Banks Big Customers
6. IMPORTANCE OF BANKS IN THE
ECONOMY
FINANCIAL INTERMEDIATION
i. REDISTRIBUTE MONEY FROM SAVERS (SURPLUS
UNITS) TO BORROWERS (SHORTAGE UNITS)
ii. THEY DO THIS BY TAKING DEPOSITS AND GIVING
OUT LOANS
7. WHY BANKS HAVE FAILED?
LOANING MONEY TO CUSTOMERS WITHOUT MEANS
OF PAYING THEM BACK
8. ETHICS
• ETHICS CAN BE DESCRIBED AS THE ‘BEHAVIOUR’ OF
SOMEONE/SOMETHING, IN THIS CASE BANKS. IT
MEANS THE MORALS AND CONDUCT OF THE
BEHAVIOUR OF BANKS.
9. ETHICS OF BANKING
One major cause of the financial crises was the banks’ lack of effort
to have good ethics.
Reasons how the banks failed with ethics:
The incompetence of bankers concerned
Not enough supervision by the FSA.
Reckless risk taking
10. NEW ETHICS
Banks have signed a new code of ethical behaviour.
They will be monitored by the Chartered Banker Institute
Banks that fail to meet the standards of the new code will be
stripped of their rating.
11. ECONOMIC PERSPECTIVE
THE QUESTION WE WILL LOOK AT FOR THE ECONOMIC PERSPECTIVE
IS:
IN THE FUTURE; SHOULD A FAILING BANK BE SAVED OR ALLOWED
TO FAIL?
ECONOMICS OF BANKING RELATE TO THE OPERATIONS OF THE
BANKS. HOW THEY WORK WITH INTEREST RATES AND THE SERVICES
THEY OFFER, SUCH AS MORTGAGES AND LOANS.
12. SAVED VS. FAIL
FAIL:
NO BANK IS TOO BIG TO FAIL.
NEW INSOLVENCY RULES SHOULD BE BROUGHT IN.
SAVED:
A COLLAPSE OF ONE BANK MAY LEAD OTHER BANKS TO FOLLOW
AND COLLAPSE AS WELL.
13. SUMMARY OF SAVED VS FAIL
ALL IN ALL THERE IS STILL SOME DIVIDED OPINION OF WHETHER BANKS
SHOULD BE BAILED OUT BY THE GOVERNMENT.
THE MAIN FOCUS NOW IS TO ENSURE THAT BANKS ARE PROPERLY
REGULATED
MORE CALCULATED RISKS ARE TAKING
THE TAXPAYER DOES NOT FOOT THE BILL AGAIN AND THAT BANKS HAVE
PROVISIONS IN PLACE IN CASE A CRISES DOES HAPPEN AGAIN.
14. WHAT IS BANK REGULATION?
BANK REGULATIONS ARE A FORM OF GOVERNMENT REGULATION
WHICH SUBJECT BANKS TO CERTAIN REQUIREMENTS, RESTRICTIONS
AND GUIDELINES.
15. WHY DO THE BANKS NEED TO BE
REGULATED?
Banks get regulated because they need to adhere to government
guidelines.
These guidelines are there to make sure the banks act ethically
And to try and stop another crash in the banking sector
16. THE IMPORTANCE OF REGULATING
BANKS
TO AVOID ANOTHER FINANCIAL CRISIS.
TO REGAIN THE TRUST BETWEEN CUSTOMERS AND BANK
SHAREHOLDERS.
IMPORTANT TO RESTORE THE CONFIDENCE IN CONSUMERS TO
ENCOURAGE MORE SPENDING.
IMPORTANT FOR INDUSTRY TO PICK UP IN THE UK.
17. HOW SHOULD BANKS BE REGULATED
IN THE FUTURE?
RELYING ON THE GOVERNMENT TO BE MORE STRICT
WITH REGULATIONS.
MORE RESTRICTIONS ON SUB-PRIME LENDING?
TIGHTER REGULATION? NOT NECESSARILY A GOOD
THING.
18. AGAINST TIGHTER REGULATION:
WITH TOO MUCH REGULATION, BANKS CANNOT BE
COMPETITIVE AND EFFICIENT.
BUSINESSES WILL TRY AND PUSH THE BOUNDARIES
OF REGULATION TO TRY AND COMPETE WITH
COMPETITORS.
19. ISSUE OF THE BANKERS’ BONUSES
BANKERS GET BONUSES ON THE
BUSINESS THE GENERATE FOR THE BANK.
BONUS CAN BE ISSUED IN FORM OF
CASH OR SHARES
20. ISSUE OF THE BANKERS’ BONUSES
IN 2010 BARCLAYS CEO EARNED 6.5m IN
BONUSES
IN 2010 GOLDMAN SACHS ISSUED BONUES
OF 4m
ALL THESE BONUSES WERE GENERATED BY
SPECULATION OF THE FOOD MARKET
Editor's Notes
Banks lending to people who were highly unlikely to be able to pay back the loans they took out. Defaulting on loans.Bankers ^ relates to problem.FSA was not regulating as strictly as they should have been which allowed the Banks to undertake risks that were too high and were very likely to fail.
Banks lending to people who were highly unlikely to be able to pay back the loans they took out. Defaulting on loans.Bankers ^ relates to problem.FSA was not regulating as strictly as they should have been which allowed the Banks to undertake risks that were too high and were very likely to fail.
Stripped of credit ratring for poor practice.New code helps people see that banks are changing their way to improve ethics and that tighter regulation is coming in place.
Fail:No bank is too big to fail meaning that if the bank suffers because they have been reckless with lending money out to people and taking uncalculated risks then should be allowed to fail.Insolvency rules would allow banks to go bust, but it should be that the loss of the bank does not fall on the taxpayer. And they have to be bailed out again.Saved:If one bank does collapse then a domino effect could happen, which happened during the financial crises in 2008 and they had to be bailed out by the taxpayer.T
The main concern is that banks should not be bailed out using public money again and that there is more regulation in the ethics of banking.
The financial crisis has demonstrated that significant change is needed in relation to recent issues. In the last decade at least £15bn of redress has been paid out to consumers in response to the conduct failures of firms.Therefore, it is important for the banks’ sakes and customers that regulation is improved in order to improve the trust and confidence customers have in the banks.Furthermore, once this has happened and customers begin to take out loans again without fearing they will not be able to pay it back due to sloppy financial credit checks from the bank, it will kick-start the economy again, improving spending and therefore injections into the economy which contributes to the circular flow of income.
Many reforms are being discussed for banks after the previous economics crisis. Obviously we would like to hope that we can rely on the government to control the banks and ensure we do not hit another economic crisis. However, this was evidently not the case for the UK economy with Gordon Brown as our prime minister- even though he was once chancellor of the ex-chequer. As the Banks were regulated by the FSA, then the basic regulations against which they are assessed must be questioned, in addition to the competence of the regulators.Perhaps the underlying problem lies within the issue of too much sub-prime lending. (Providing loans to people who may have difficulty maintaining the repayment schedule.) As everybody is aware, this was 1 of the big issues that led to the financial crisis as the banks were taking too many risks lending to people that could not pay their loans back. We cannot deny that if there was a clamp down on sub-prime lending, the confidence in that money would be paid back to the banks would be dramatically increased. Furthermore, to suggest that banks need to be regulated a lot more is debatable.
It is not possible to have efficient and competitive banks which can at the same time be guaranteed against failure. Lending money, however careful the banker, is never risk-free. A bank cannot make profits by lending just to the government; it needs to lend at risk to make profits which are needed to survive and prosper.However, relying on a regulatory system means inevitably that managements will conduct their business up to the limits of regulation (given that competitors will be doing this) rather than relying on their own judgment as to where the prudential limits are. This is always the trouble with regulation. The paradox is that regulation to limit risk increases it.
