Ethical Issues in the Banking Industry

Over the years, banks have undergone tremendous growth in many aspects of their operations, starting with the type of customers they deal with to the manner in which information is received, recorded, transformed, and finally used. Ultimately, banks have unraveled the whole mystery of discrimination as to what customers to offer services to or not by categorizing their clients in terms of their income structure. This classifying of customers is meant to assist in the decision making process as to what customer receives what treatment, but it is also meant to assist the banks in understanding the type of customers to offer better services to. Therefore, regulated by their policy of information non-disclosure, banks would obtain very crucial information about various customers (their age, sex, race, employment status, as well as income level) with a notion that they are adhering to the Know Your Customer policy. This information is supposed to be private and confidential. However, on close examination, one would realize that banks need such information to make decisions aimed at enabling them to remain in the global market while at the same time, maintaining their traditional banking principles.

Consequently, the objective of this article is to analyze the various unethical practices the employees of the bank practice, and their relevance to the community at large. Moreover, the unethical practices will be addressed in a manner that relates to ethical dilemma and decisions regarding management. Banks operate in an economy that is very volatile, and they need to ensure that various practices are done in the traditional banking manner, provision of financial services in a legal manner. This information is thus democratized and the level of privacy expressed to customers is thus questionable. This is because, they only way in which this information can be protected is by using access codes. However, any employee can be able to access this information based on whether he/she has this access codes or not. In addition, most employees in the banking industry would want to access customer information based on various reasons. One, employees are evaluated in terms of their performance to the bank; this requires that they obtain crucial information about customers in a bid to decide on what services to offer them or not. In so doing the employees end up violating the information privacy requirement that clients would wish to have.

Secondly, because of the current market trends in the banking industry, services have been made available even to the lowest income earner in order for banks to exploit all possibilities in terms of lending and customer deposits. In addition, the sales team works diligently to acquire customers both in terms of deposits taking or loan advancement. Moreover, of great significance is the manner in which they obtain information about clients before they can influence them to accept the services offered by the banks. Information is actually retrieved from the database by whoever lays hands on access codes, and customers having good credit history, and huge income are contacted in order to take up loans or open up other accounts with the bank. Further, these customers are treated with respect and they are offered what has been termed as superior services, premium services. These services could range from dedicated management assistance, special separate banking premises, and other services such as internet, meals, to name but a few.

On the other hand, those customers with a lesser income level, their treatment is more general and the bank’s credit advance to them is highly scrutinized compared to the premium customers. The information obtained from customer plays a very significant role in enabling management to understand the nature of their customers in a bid to offer relevant services to them. For instance, a customer who has a higher income level could be given alternative solutions as to how he/she could better use his/her income effectively in order to generate more income. Well, this attitude implies that the bank would wish to enable the employee benefit from the global economy in terms of investment and finance. However, the manner in which this process is attained is through privacy violation, which again touches on the whole issue of values; are banks really promoting ethical values as they seemingly purport to show in their terms and conditions, or they are merely doing trying to convince customers? A question like this one could seem obvious but it is a triple bottom line question. In addition, it concerns the balance that is required between being ethically oriented and at the same time acting as a role model in the global economy.

Another aspect of information disclosure relates to issuance of bank services to customers. This is done in a manner that customers should receive full information as to the commitment they are about to engage in. Besides, some information if well known to customers could send these prospective customers away from the banks. Nevertheless, withholding this information seems to be the only way out for banks to maintain their customer base. Therefore, bank employees tend to give customers critical information only when they request for it, and in case they do not, then this information is withheld. Which kind of information could banks withhold in order to maintain or attract customers? Information regarding bank charges, loan processing fees, salary processing fees, insurance coverage fees, loan payment default repercussions, interest rate computation information, to name but a few. Most of this information, if disclosed to some customers, could lead to disastrous results. Therefore, driven by their desire to generate increased revenue and reduced costs, banks find it comfortable to offer services to customers behind closed doors. Therefore, these behaviors arouse serious debate as to the role of the banking sector in promoting social well-being. Whereby, customers would like to maximize their utility of services from the banks, while banks on the other hand would want to maximize revenue in order to cater for the costs incurred in technology and other services rendered.

Information disclosure does not have to relate to customers alone, but also to competitors. Nevertheless, there is some information which is so important to the progress of banks, and if this information goes to competitors, then the bank whose information has been violated, stands to loose. There have been instances of insider information ending in the hands of competitors without having a clue as to whoever supplied that information, and the impetus for doing so. This situation occurs in cases when some people are employed in some banks not because they want to work there but because they want to obtain important information about the organization in question. This has been deemed to occur in certain banks, which end up loosing customers because of their information usage by the competitor financial institution. On the one hand, this practice could be considered a business strategy, which could provide resourceful information for the management decision-making process. On the other hand, this could be deemed an unethical practice owing to the fact that such a practice violates banking practices of fair play.

Another area of unethical endeavor is on the issue of interest rates determination. Whereby, banks usually operate in a manner that they use the base lending rates that stipulated by the banks’ governing body (Central Bank). These rates represent the lowest value possible for advancing loans to customers. However, banks also engender to generate maximum profits because that is their essence as business enterprises. Nevertheless, because of technological advancement, competition has become the most common war in the current society. Thus, in order for banks to come up with sound decisions pertaining interest rates, they call to focus many factors, which are of course logical. For instance, blue chip companies are given lower rates compared to the standard companies. Furthermore, companies are approved based on their performance over a certain period of time as well as their level business trend. Employees in these banks are encouraged to pursue those high-end customers, more than the rest. The banks’ management does not directly encourage employees to pursue high-end customers; they rather use reduced interest rates to lure these customers to obtain bigger credit from them so that the final interest rate value remains higher.

On the other hand, customers with poor credit history, low-income level, and unknown business practices, are offered highly scrutinized services. For instance, their loan advancements are denied on various bases, but the bottom line is that these banks do not want to make commitments to individuals who might end up generating losses. However, when evaluating this trend from banks to offer credit to individuals with high credit worthiness, and deny credit to customer with low-income levels, issues of ethics come in. First, one could see these financial institutions offering services to individuals who do not take a damn about whether they are offered finances or not, while treating those who really need financial assistance with caution. An institution with greater social responsibility should not behave in a manner that contradicts their practices, but a balance has to be maintained between the two sides of ethics and development. Moreover, too much over-reliance to ethics could lead to negligence on sustenance, opulence, technological advancement, and financial progress, which could as well offer more support to the society through social responsibility services. On the other hand, over reliance on globalization could lead to negligence of the ethical standard to treatment that banks are required to follow.

Customer Information Protection

Information is a powerful tool for controlling individuals. Once one is in possession of crucial information, he/she can decide to do something drastic and detrimental to the other party concerned. Therefore, banks in line with the current technological advancement have fostered various mechanisms that offer more confidentiality that is appealing to its customers. This has been through the installation of new management information systems, which are highly structured and monitored. For instance, access codes are provided in a manner that each code offer access to a certain level of information to the banks employees. Employees at the top level of management are offered access to a wider range of information access because they are the major stakeholders in the decision making process of the companies. In addition, tactical level managers have authority to oversee the various progress reports of other employees. Thus, this form of management fosters accountability and responsibility in the manner in which employees treat customer information.

Furthermore, this use of access codes has been facilitated by information systems that track and record various issues regarding the daily operations of the banking industry. For instance, individuals accessing computers are monitored by a system that indicates their time of access, the type of information they were accessing, and the reason as to why they were accessing this information. Hence, this management information system leads to responsibility and protection of customer information, because whoever tempers with information is dealt with accordingly. Moreover, employees are required to access only information that relates to their line of duty. Another manner in which banks are responding to efficient information management is through video monitoring. Whereby, in this manner of information policy, employees are monitored by a well-protected computer video recording system, which records the various employees and their locations as well as time. In this case, access to information on various systems is traced back quickly.

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