The Financial Crisis – A Case Study

Topics: Ethics, Bank, Tax Pages: 5 (2281 words) Published: October 31, 2014

The Financial Crisis – A Case Study.Enterprise and Social Responsibility Introduction:
The Moral dilemma of financial crisis or banking reforms do not start from 2007 but since 1986’s big bang policy of merging investment banks, building societies, and high street banks (Kynaston, 2011). Taxpayers’ money without public consent but with aim of general benefit was put as subsidy to the financial system which faced many booms and made London as international financial hub until proving too big to fail during recession and hence creating dilemma of public rights because banks had moral hazard. Now government trying to save both financial system as well as taxpayers’ money through banking reforms whom authenticity could only prove with time. Question 1:

Miles (2012) defines stakeholders as individuals or groups who or to whom organisations have obligations and rights and normative rationale for moral duties. The harms and benefits analysis of some of external and internal stakeholders is as follows: The State:

The banks became too big to fail because they were given liberty to enjoy monopoly which put sovereignty of state at stake and government had to bail them out (Reynolds, 2014). Till 2009 government put £850 billion (BBC, 2009) to save banks and as a result budget deficit went to record £90 billion only in 2009 (BBC, 2009).Banking reforms give control back to government and banks can be put on trial and would not be bailed out in future, so trust on financial system would be sustained and public money would not be at risk. Public:

The ring-fencing law is a relief for public that their deposits and tax money would be safe (GlobalPrison, 2011). The aftershocks of previous recession can stay for years in term of high unemployment and inflation. Business:

Banks will not lend money easily and also cost of borrowing would increase which would make it difficult particularly for small enterprises and new start-ups. Business sector is being ignored under utilitarian approach to sacrifice for the greater good of nation. Shareholders:

Shareholder may not find banking sector profitable anymore as the demand for the bank shares is still low and may not get to that boom as in pre-recession time (Caldwell, 2013) Employees:
Now employees would not have chance of high earning and the external pressure of risk of prosecution can de-motivate them and the banking sector can become less attractive. Few critics believe that Banks may look to offshore their headquarters to avoid pressure of new law (GlobalPrison, 2011) Question 2:

Birsch (2014) explains Bentham’s utilitarianism as a consequential theory that any action is ethical if it produces greatest pleasure, benefit, utility, advantage for greater numbers. Alexander (2006) believes though cost-benefit analysis and utilitarianism are not same but are relevant as cost-benefit analysis can be used as operational tool of utilitarianism. Here is cost-benefit analysis of UK banking reforms to analyse if they are ethical with respect to utilitarianism. Stakeholders UK Banking Regulation: Yes UK Banking Regulation: No Benefits Harms Benefits Harms

State/ Government Control,
Sovereignty,
Public Trust on Financial System,
Low Budget deficit,
Don’t have to bail-out, Relatively low economic growth None Risk of other recession, Opposite of all benefits in ‘yes’
Public Tax money use for public benefit,
Safe deposits,
Depositor preference act for flexibility.
None None Uncertainty,
Opposite of all benefits in ‘yes’
Businesses Stable economy Less Borrowing facilities,
High Cost of Borrowing More money available,
Low cost of borrowing, During recession business can go bank corrupt as economy fails. Shareholders Less chance for banks to go bank corrupt
Less dividend,
Banks not too big to fail. High dividends,
Too big to fail Workers Job security Less chance of bonus,
Accountable, High Earning,
Freedom of working. None
Banks Less Risk,
Improved resilience, resolvability, High...

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Al-Humazah (2014) Qur’an: English with short commentary
BBC (2011) Acclaim for banking shake-up plan. BUSINESS: BBC NEWS [online] 12 September. Available: http://www.bbc.co.uk/news/business-14877865 [Accessed: 11 March 2014]
BBC (2009) Budget 2009 in figures: BBC NEWS CHANNEL [online] 22 April
BBC (2009) Taxpayer’s bail-out of banks ‘justifited’, says NAO: BBC NEWS CHANNEL [online] 04 December. Available: http://news.bbc.co.uk/1/hi/8394393.stm [Accessed: 11 March 2014]
Birsch, D
Hasbunallah (2014) The Fitna of Money/Wealth. Hasbunallah. [online] Available: http://www.hasbunallah.com.au/fitna-money-wealth/ [Accessed: 12 March 2014]
HISTORIKA (2012) Global Financial Meltdown (Must See
Pojman, L. and Fieser, J. (2012) Ethical Egoism. In Ethics: Discovering Right and Wrong. 7th ed. P 87. Wadsworth: Cengage Learning.
Reynolds, P. (2014) Opinion: Shocking complacency in UK banking reform. Liberal Democrat Voice [online], 20 January. Available: http://www.libdemvoice.org/opinion-shocking-complacency-in-uk-banking-reform-37893.html [Accessed: 09 March 2014]
Staveren, I
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