This paper explores the ethics of bank executives receiving large bonuses despite the fact that they received a bailout. I identify the utilitarian and deontological implications of these executives’ actions. This paper also examines if the executives deserved the bonuses, did the banks need a bonus, and how the banks should have been regulated by the banks.
Keywords: bailout, utilitarian, deontology
Ethics of Bank Bailout Bonuses
Currently the economy is still in “The Great Recession” largely due to the fallout caused by banks. Banks caused this fallout by giving out home loans to unqualified borrowers. The banks approved loans they know could not be repaid by the borrower because of the terms such as adjustable rates. These home loans started defaulting; which started a domino effect of bank failures, further driving the economy into a downward spiral. In came the government, armed with astronomical sums of money determined to rescue these large financial institutions. Enrich, Hilsenrath, and Solomon (2009) state that 700 billion dollars of taxpayer money was used to bailout these banks under the Troubled Assets Relief Program (TARP). It wasn’t long after these bailouts that these banks continued to reward the executives with large bonuses. Should have these top executives of these major banks that received the bailout money been allowed to receive large bonuses? I say definitely not because it was wrong under the provisions of utilitarian ethics which I believe should have been applied in this situation. These executives were at the helm when these banks failed. Bonuses should be rewards for success not compensation for a title or position. If these banks had enough money to give bonuses then the question of do they really need a bailout should be asked. Furthermore, this bailout money did not belong to the banks to give out as they pleased, it belonged to the taxpayers and the money should have been accompanied by stringent regulations imposed by the government.
A bonus is normally given as a reward for production or as an enticement for favored behavior or performance. On Wall Street a bonus is an equivocal right with no strings attached. Success or failure does not matter. Being an executive in the country’s most powerful financial firms is justification enough to entitle them to a bonus. This is the methodology that these institutions follow. Executives used deontological ethics because they focused on their rights and entitlements as executives. They decided their rights to large bonuses outweighed the importance of righting the economy which affected the entire country. Meanwhile, these are the same executives that were in charge when many American’s retirement plans and investments were depleted or completely wiped out. These were the same executives that oversaw an industry that gave out home loans with impossible repayment terms. It can be argued that the banks caused the entire financial woes that are still present today. Instead of the institutions terminating their executives for not stopping their organization’s misdeeds they were rewarded. These bank executives drove their institutions to the brink of demise. Yet, they were still rewarded with multi-billion dollar bonuses. How could this be justified or ethical?
According to Freifeld (2009), Citigroup Inc., Merrill Lynch & Co. and seven other U.S. banks paid $32.6 billion in bonuses in 2008 while receiving $175 billion in taxpayer funds through TARP. That means that almost 20% of the government’s bank bail-out to these banks was used on bonuses for their institution’s executives. The question has to be asked, “Could the bank bailout have been 20% less to these banks?” An even more interesting question would be, “Did these banks really need the bank bail-out money?” These executives took an ethical egoistic approach by accepting these bonuses. Andre and Velasquez (1989) explain that three steps to...
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Despite Bailout, Bank Chiefs Received Bonuses. (2008, Dec 22). The Washington Times. Retrieved from http://www.washingtontimes.com/news/2008/dec/22/despite-bailout-bank-chiefs-received-bonuses/?page=2
Freifeld, K., (2009, July 30). Banks Paid $32.6 Billion in Bonuses Amid U.S. Bailout. Retrieved from http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aHURVoSUqpho
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