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Reassessing the Ethicality of Some Common Financial Practices

Author

Listed:
  • Philipp Bagus

    () (Universidad Rey Juan Carlos)

  • Amadeus Gabriel

    () (Groupe Sup de Co La Rochelle)

  • David Howden

    () (St. Louis University – Madrid Campus)

Abstract

Abstract 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.

Suggested Citation

  • Philipp Bagus & Amadeus Gabriel & David Howden, 2016. "Reassessing the Ethicality of Some Common Financial Practices," Journal of Business Ethics, Springer, vol. 136(3), pages 471-480, July.
  • Handle: RePEc:kap:jbuset:v:136:y:2016:i:3:d:10.1007_s10551-014-2525-9
    DOI: 10.1007/s10551-014-2525-9
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    References listed on IDEAS

    as
    1. Philipp Bagus & David Howden & Amadeus Gabriel, 2015. "Oil and Water Do Not Mix, or: Aliud Est Credere, Aliud Deponere," Journal of Business Ethics, Springer, vol. 128(1), pages 197-206, April.
    2. Bagus, Philipp & Howden, David, 2012. "The Continuing Continuum Problem and Future Goods," MPRA Paper 79595, University Library of Munich, Germany.
    3. Anthony Evans, 2014. "In Defence of ‘Demand’ Deposits: Contractual Solutions to the Barnett and Block, and Bagus and Howden Debate," Journal of Business Ethics, Springer, vol. 124(2), pages 351-364, October.
    4. Philipp Bagus & David Howden, 2009. "The Legitimacy of Loan Maturity Mismatching: A Risky, but not Fraudulent, Undertaking," Journal of Business Ethics, Springer, vol. 90(3), pages 399-406, December.
    5. Philipp Bagus & David Howden, 2012. "Still unanswered quibbles with fractional reserve free banking," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 25(2), pages 159-171, June.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Anastasia Cozarenco & Ariane Szafarz, 2018. "Gender Biases in Bank Lending: Lessons from Microcredit in France," Journal of Business Ethics, Springer, vol. 147(3), pages 631-650, February.
    2. repec:idn:jimfjn:v:4:y:2018:i:2j:p:1-32 is not listed on IDEAS

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