Some ethical dilemmas of modern banking | Zendy

Bagus Philipp | Zendy; Howden David | Zendy

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Some ethical dilemmas of modern banking

Author(s) -

Bagus Philipp,

Howden David

Publication year - 2013

Publication title -

business ethics: a european review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 1.343

H-Index - 35

eISSN - 1467-8608

pISSN - 0962-8770

DOI - 10.1111/beer.12025

Subject(s) - maturity (psychological) , loan , function (biology) , business , foundation (evidence) , social function , accounting , law and economics , economics , law , finance , political science , sociology , social science , evolutionary biology , biology

How ethical have recent banking practices been? We answer this question via an economic analysis. We assess the two dominant practices of the modern banking system – fractional reserves and maturity transformation – by gauging the respective rights of the relevant parties. By distinguishing the legal and economic differences between deposit and loan contracts, we determine that the practice of maturity transformation (in its various guises) is not only ethical but also serves a positive social function. The foundation of the modern banking system – the holding of fractional reserves against deposits – is, however, problematic from economic, legal and ethical perspectives. Starting from a microanalysis of money's function, a reassessment of the current laws concerning the practice is encouraged, with the aim not only to rectify economic irregularities but also to realign depositors' rights with the obligations of the banking sector.

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