Reassessing the Ethicality of Some Common Financial Practices
- 314 Downloads
Depositors have perceived banks as acting unethically during the most recent recession. One area of consternation is the ambiguity of the legal obligations entailed by the deposit contract when it is backed with only fractional reserves. In this article, we apply an existing analysis of the legitimacy and ethicality of banking practices to a wider range of financial transactions, including insurance policies, securities lending, perpetual bonds, and callable loans. Securities lending in particular creates rights violations analogous to those in fractional-reserve banking. Both callable loans and perpetual bonds have clear legal obligations which are not inherently problematic, though we herein clarify what these obligations are. Finally, we apply our ethical framework to demonstrate that insurance products are distinct from banking deposit contracts, and that perceived parallels between the two products underestimate these differences.
KeywordsInsurance Banking Fractional reserves Callable loans Perpetual bonds Callable loans
- Boatright, J. R. (2014). Ethics in finance. Oxford: Wiley Blackwell.Google Scholar
- Bodie, ZVI, Kane, A., & Marcus, A. J. ( 2010). Essentials of investment (8th ed.). New York: McGraw-Hill.Google Scholar
- Brealey, R. A., & Meyers, S. C. (2003). Principles of corporate finance (7th ed.). New York: McGraw Hill.Google Scholar
- Checkland, S. G. (1975). Scottish banking: A history, 1695–1973. Glasgow: Collins.Google Scholar
- Howden, D. (2014). A pre-history of the federal reserve. In D. Howden & J. T. Salerno (Eds.), The fed at one hundred: A critical Review of the Federal Reserve System (pp. 9–21). London and New York: Springer.Google Scholar
- Huerta de Soto, J. ( 2009). Money, bank credit and economic cycles. Auburn, AL: Ludwig von Mises Institute.Google Scholar
- Köhler, M. (2013). Hume’s Dilemma—oder: Was ist Geld? Geldschöpfung der Banken als Vermögensrechtsverletzung. In G. Freund, U. Murmann, R. Bloy, & W. Perron (Eds.), Grundlagen und Dogmatik des gesamten Strafrechtssystems (pp. 878–923)., Festschrift für Wolfgang Frisch zum 70. Geburtstag Berlin: Duncker & Humblot.Google Scholar
- Koslowski, P. (2012). The ethics of banking: Conclusions from the financial crisis, (trans.) Deborah Shannon. New York: Springer.Google Scholar
- Mills, T. C., & Wood, G. (2011). Two-and-a-half centuries of British interest rates, monetary regimes and inflation. In G. Wood, T. Mills, & N. Crafts (Eds.), Monetary and banking history: Essays in honour of forrest Capie (pp. 158–177). New York: Routledge.Google Scholar
- von Ludwig, M. (1971). The theory of money and credit (H. E. Batson, Trans.). Irvington-on-Hudson, NY: Foundation for Economic Education.Google Scholar
- von Ludwig, M. ( 1998). Human Action: A Treatise on Economics. Auburn, AL: Ludwig von Mises Institute.Google Scholar
- White, L.. H. (2007). Huerta de Soto’s case against fractional reserves. Free Market News Network, 8th January 2007. Retrieved 21 May 2014, from http://www.lostsoulblog.com/2009/12/prof-lawrence-h-white-responds-to-jesus.html.