Ethics in Banking sector 

 Lecture Note

Compiled by: Ihsanul Aziz
Additional Managing Director
Social Islami Bank Limited

Ethics in Banking sector 

 Ethical Issues with reference to the Banking sector:

Adam Smith (2003, 372) in Book II of The Wealth of Nations identified three essential conditions for confidence in banks. They are, in his words, ” the fortune, probity and prudence of a particular banker” The fortune of a bank today corresponds to its capital and prudence may be equated to its efficiency. Both these qualities are essential for management not only of banks but also of any corporate enterprise. What makes a bank unique in the corporate world is the requirement of what Adam Smith calls “probity”. Webster’s Third New International Dictionary defines the term probity as “uncompromising adherence to highest principles and ideals” Business Dictionary. Com characterizes probity as “adherence to a code of ethics based on undeviating honesty, especially in commercial (monetary matters) and beyond legal requirements”.

Banking business is based absolutely on trust. Sir John Hicks (1969, 78) in his Theory of Economic History used the term trust twice in the same sentence to explain the emergence of banking: “Here the loan is given to an intermediary (one of those who is trusted by prime lender) in order that he should relend to those whom he trusts”. Trust is a relationship of mutual reliance. Usually, trust is placed on those who are expected to be ethical in their activities and thoughts. Trust creates a social environment of mutual cooperation. The unbroken honoring of trust generates more mutual dependence and confidence in each other while breach of trust creates an environment of uncertainty and suspicion. As a result, the shocks resulting from loss of confidence in a financial institution are not usually confined to that particular institution only.  By triggering panic, the contagion effects of such incidents may pose a threat to entire financial system. Banks, the citadels of material wealth, are, therefore, highly fragile without solid ethical foundation.

Normative Ethical Theories

Ethics is usually defined as “the branch of philosophy that is concerned with what is morally good and bad, right and wrong, a synonym for it is moral philosophy” (Encyclopedia  Britannica,            6,976). However, there is no unanimity on how to define and operationalize moral principles like good or bad and right or wrong. Broadly speaking there are three approaches to normative ethical .There are:

1. Virtue ethics
2. Deontology or deontological ethics
3. Consequentialism

The roots of Virtue ethics lie in the ancient Greek Philosophy, particularly in the works of plato and Aristotle. According to this View, goodness or righteousness is an attribute of the individual .The acts are not judged by rules or consequences for example, lying is always wrong even. If lying in a particular case may be beneficial.Vitue is not therefore, relevant to artificial person like banks, which are joint stock companies with limited liabilities of owners. Though in reality natural persons like the members of  Board of directors and top managers run banks, legally a corporate veil shields them. Of late, the courts have pierced in significant ways the corporate veil that treats corporations as totally separate from shareholders. These decisions of the courts in industrial counties treat the rights or duties of a corporation as the rights or liabilities of its shareholders and directors.

Ethics in Banking sector 

The second normative ethical approach is known as deontology or deontological ethics. The term deontology is derived from the Greek word deon, which implies ‘obligation’ or ‘duty’. Deontology is described as ‘duty’, ‘obligation’ and ‘rule’ based ethics. It is concerned with the goodness and rightness of an act. The act is right if it is prescribed by rules as duty or obligation, even if it produces a bad consequence Because of its several limitations, deontology cannot serve as a satisfactory ethical foundation of the banking system. First, deontology believes in the unconditional and absolute primacy of moral laws and rules out any choice between two wrongs. In real life, there may be a choice between lesser and greater wrongs.

The third normative approach in ethics is known as a Consequential ism. It postulates that the only way to assess the morality of a particular action is to judge its consequences. In other words, it suggests that ends justify the means. An act per se is not right or wrong; consequences of a particular action make it right or wrong. From the operational point of view, there are several advantages of this approach. First, it gives us an opportunity to choose the best course of action by comparing possible outcomes. The best course of action is the one that produces greatest happiness to maximum number of people. Secondly, consequences could be used as yardsticks of rightness not only for personal decisions but also for public actions.

The Fundamentals of Realizable Ethics in Banking

None of the conventional normative approaches can provide an adequate basis for ethics in banking though each one of them furnishes useful guidance. Ethics in banking should be eclectic, broad and realizable. From the operational point of view, it is essential to specify four fundamentals of ethics in banking:
(1) Why (2) Who (3) What, and (4) How?

Why?

Broadly speaking:  there are three justifications for emphasis on ethics in banking operations:

• Ethics as a means of good business
• Ethics as an end in itself
• Ethics as the business itself

Ethics as a means of good business

This view draws its inspiration from the doctrine of Corporate Social Responsibility (CSR). The CSR is a built-in self-regulating mechanism whereby a business would monitor and ensure its adherence to ethical standards and local as well as international law. It is based on bottom lines of three P’s People, Planet and Profit. Its purpose is to keep its stakeholders (People)  happy, to undertake environmentally sustainable activities (Planet) without sacrificing profit. It provides a win-win situation where the business and its stakeholders benefit.

Ethics as an end in itself

Ideally, ethics is non-negotiable. As Ferdinand I, the Holy Roman Emperor, said, “Let justice be done though the world perishes”. One might wonder what will be the benefit of justice if the world itself ceases to exist.
Ethical banks like Islamic banks believe that ethics is not a means to an end but an end in itself. There are several weaknesses of this approach. First, for ethical banks, no deviation from ethical principles is permissible. In real life uncompromising ethics is not realizable

Ethics as the business itself:

The typical ends and means views of ethics provide a distorted notion of role of ethics in banking. The third view underlines the fact that banks cannot exist without ethics. Nowhere in the corporate world ethics is so important as in banking. Banks not only act as the custodian of other people’s money but also create money in the expectation that much of funds withdrawn by its depositors will be ploughed back as new deposits. Their capacity to attract deposit and create money depends on the confidence they enjoy in the market. Banking business is based absolutely on the trust of its depositors. With a view to ensuring the safety of its depositors, a bank is required to screen out unreliable creditors and non-viable projects. By dealing with trustworthy clients, banks expand the circle of trust. The sustained trust in a bank creates a virtuous circle that facilitates transactions in the economy as a whole. On the other hand, breach of trust generates a vicious cycle that may lead to panics and runs in banks and consequential contagion effects.

Who?
Broadly speaking, the major actors in banks function in three capacities:

• Corporate
• Collective
• Personal

Corporate ethics

Though a bank is an artificial entity, it cannot be absolved from ethical responsibilities. A bank interacts with natural persons. But the ethical responsibilities of banks are not confined to their corporate entities only. Persons who run banks also share them to a large extent. They are individually and jointly responsible.

Collective ethics

The doctrine of collective ethics highlights the joint responsibility of the members of the Board of Directors and the top management that runs the banks. However, banks are highly regulated institutions. In many cases, the commissions and omissions of regulators of banks may contribute to unethical acts. In that case, the regulators should also be held liable for breach of ethics.

Personal ethics

Ideally, personal ethics involves adherence to ethical principles and norms by all stakeholders in a bank. Such stakeholders may be divided into two categories: direct and indirect. The direct stakeholders include all employees, from a director to doorman. The indirect stakeholders comprise the depositors, creditors and others having any transaction with the bank. The indirect stakeholders may not always be ethical. It is the responsibility of direct stakeholders to screen out unethical indirect stakeholders. It is, therefore, sufficient to ensure compliance of ethical responsibilities by direct stakeholders.

What?

Broadly speaking, there are two ways of defining the content of ethics: holistic or totalist and minimalist. Holistic ethics has two important features. First, holistic ethics assumes the unity and integral wholeness of all people and all nature. All people include present and all future generations and the term nature is used in the widest sense. Secondly, according to holistic ethics, acts are not performed merely for compliance with law, precedence and social norms but with a sense of doing good freely. There are two extreme views on the ethical duties of a bank. According to the conventional view, a bank is a profit-making institution, which is subject to certain extra-responsibilities prescribed by law. The intellectual foundation of this view is rooted in Milton Friedman’s exposition of corporate social responsibility. “I have said ” argued Milton Friedman, “that there is one and only one social responsibility of business, – to use its resources and engage in activities designed to increase its profits, so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”. The rules of the game in the market economy are embodied in laws. Banking laws are designed mainly to protect depositors; they are indifferent to considerations of equity, fairness, and justice. C J. Cowton (2002) made an attempt to combine the ethical obligations of conventional and ethical  banks under three categories: (1) banking on integrity, (2) lending with responsibility, and (3) affinity. Integrity is needed in banking to generate the trust that is essential for financial system to survive and thrive. The banks should lend their funds responsibly so that risks to banks are minimized. Banking on integrity and lending with responsibility are not only moral obligations of banks but also their legal duties .From the ethical point of view, the duties of banks can be divided into two categories: primary and secondary. The primary ethical compulsion of a bank is to ensure safe financial intermediation by protecting deposits and lending with due caution The secondary ethical obligation of a bank may be defined in terms of Amartya Sen’s theory of justice. Sen argues that it is not possible to define justice. However, inability to define justice cannot be the excuse for the continuance of “manifest injustice” Following Sen, the secondary ethical responsibility of banks may be defined as the “reduction of manifest injustice.Nonetheless, it is possible to identify ethical deficiencies that may be reasonably defined as “manifest injustice”. The following is an illustrative list:

• Lending too much to too few. It is risky because if large borrowers fail, the bank itself will be threatened. This also contributes to make the rich richer and the poor poorer. Often, such lending results in ‘relational capitalism’ where business conglomerates with the help of financial institutions monopolize the market and dominate the entire economy.
• Lending too little to the poor. This denies the basic rights of the poor and is, therefore, morally unacceptable.
• Taking too much risk. The higher the risk, the higher the return. On the other hand, higher risk is a threat to depositors.
• Participating in business, which knowingly causes environmental degradation
• Lack of affirmative policies for the weak, deprived and disabled. This involves a change in mind-set. It is not correct to assume that the poor and disadvantaged persons are less responsible than others.
• Ensuring highest ethical standards by owners and employees in the banks. This is at the same time an individual as well as a collective responsibility.

How?

Ethical duties can be enforced in three ways. First, in many cases, ethical obligations are imposed by the society in the form of laws, rules, regulations and moral suasion of central banks. The advantage of legislation is that the responsibility of enforcing ethical duties is taken over by the State and its organs. As legal restrictions are imposed from outside, many banks may try to evade the law by finding loopholes or cheating the regulators. Too much legislation numbs the individual sense of responsibility.
Secondly, ethical guidelines may be prescribed by Codes of Conduct adopted by a bank individually or by an association of banks collectively. Such codes of conduct are useful in specifying the ethical issues, which are not covered by laws. However, the enforcement of such codes of conduct lies with banks.
Finally, laws and codes are not enough; they must be supplemented by the voice of conscience. Individuals in banks enforce laws and codes. The ultimate ethical responsibility lies, therefore, with the persons who run the banks.No single instrument is sufficient for the enforcement of ethics in banks.

Internal Ethical Culture:

Internal ethical challenges in banks are no less formidable than external threats. Internal ethical challenges in banks arise at two levels:

• Collective ethical responsibility
• The personal ethical responsibility of bank employees 

Collective Ethical Responsibility
 

The collective ethical responsibility primarily lies with the Board of Directors and top management. Some restrictions regarding the qualifications of bank directors have been laid down in the Banking Companies Act and the regulations framed under them. They are not, however, adequate to ensure the vesting of stewardship of banks in the hands of adequately qualified and honest persons. Similarly, top management of banks should be carefully scrutinized. The following measures should be considered in this connection:
1.The qualification of directors in banks should be made more stringent (regarding length,  level, and area of experience and educational qualification).

2. More caution must be exercised in selecting the directors of state-owned banks, which are very large and in severe distress.
3. A law should be enacted disqualifying the members of political parties and their affiliates from the directorship in banks and non-bank financial institutions. The dominance of the bank board’s by political directors may promote unholy nexus between money and politics. Finally, such directors may exert undue pressure on bank regulators and supervisors.
4. Bangladesh Bank must punish promptly the top managers for both their omissions and commissions.
5. CAMELS Ratings of Banks by Bangladesh Bank should be published at regular intervals. This will exert moral pressure on banks to improve their performance.

Personal Ethical Responsibility
The bank employees represent the human faces of their corporate entity to their clients. All employees from directors to doormen should scrupulously comply with ethical practices. The following measures should be undertaken to improve the internal ethical climate in Bangladeshi Banks:

1. Each bank should lay a comprehensive code of conduct. An ethics office should be established in each bank to enforce the code of conduct.
2. There should be a complaint desk in each branch. Complaints of fraud and harassment against bank employees by customers must be attended promptly and banks should compensate the customers for fraud, and negligence of their employees.

Recommendation on the code of Banking Ethics:

In view of the above we may be recommended the following codes of Banking Ethics:
Ethics is an entire body of principles and measures, which investigates the values, norms and rules that govern the individual and social relations of the humans, from a moral viewpoint which is essentially based on the parameters of right-and-wrong, good-and-bad, etc. Professional ethics regulates the relations between the individual members of a profession and the relations of these members with the rest of the society, while corporate ethics identifies a corporate behavior culture by introducing certain rules in dealing with the problems stemming from inside or outside the organization.

The fact that banks, as organizations which fulfill investment and saving functions by playing an integrating and intermediary role between the fund-supplying and fund-demanding parties of the society, have also adopted profitability and productivity

Principles, obliges them to stick to ethical principles during their operations in both professional and corporate domains.

If we want to realize our general objectives of growing our banking system, raising the banks’ service quality, using the resources most appropriately, and preventing unfair competition between banks; we have to formulate and regulate the relations of the banks with each other and with other organizations as well as their relations with their customers, Shareholders and employees in line with ethical principles.
 
 General Provisions 

Objective and Scope  

The fundamental motive behind the banking ethics to apply to the procedures and transactions of the banks with each other and with their customers and shareholders, and as well as with other organizations is to ensure that the existing respect for the banking profession in the society is set on a permanent footing, to maintain and improve this social respect, called also as professional honor, and to maintain and protect the stability and trust in the banking sector.

General Principles

Banks are required to stick to the below-specified general principles in their operations for the purposes of ensuring an efficient operation of the deposit and credit systems, preventing the procedures and applications which may cause considerable loss and damage to the economy, serving to the best interests of the public and protecting the environment, as well as in consideration of the professional obligations of the banks such as protecting the rights and interests of the savers, maintaining trust and stability in financial markets, and the requirements of economic development of the country.

II Banks:

1. a) Honesty

Banks, during their operations, stick to the honesty principle in their relations with their customers, employees, shareholders, group companies and with other banks, organizations and companies.

 b) Impartiality

Banks should make no discrimination and should avoid all forms of bias in their attitudes towards their employees as well as to their customers. Banks should not make any discrimination towards their customers based on their nationality, religion, financial and social standing, and gender during their service.
 

1. c) Reliability

Banks should offer clear, comprehensible and correct information to their customers within the principle of reciprocal trust during their entire services and transactions; and they should provide the customer services in a timely and complete manner.

1. d) Transparency

 Banks should inform their customers in an open, easily understandable and clear way regarding the underlying rights and responsibilities, benefits and risks attached to the products and services offered to them.

1. e) Observing Social Benefit and Respect to Environment

 Banks should show due diligence to support all kinds of social and cultural activities in the light of the principle of observing, aside from the profitability, the social benefit and respect to the environment.

1. f) Fighting with Laundering of Crime-Originated Assets

 They should adopt the fight against corruption, laundering of crime-originated assets, etc. as a significant principle as stipulated by international norms and the provisions of national laws and regulations, and do their utmost for the due cooperation with each other, with other organizations and institutions related with the subject, as well as with the competent authorities. They should also assume the required measures inside their organizations for this purpose, and device training programs to instruct their personnel on the matter.

1. g) Insider Trading

Banks should take all measures in order to prevent the use of insider information for trading purposes.

III. Banks’ Relations with Public Organizations and Institutions

Banks, during their relations with public organizations and institutions, should act in observance of the principles of honesty, accountability and transparency, and should show the utmost care for the correct, complete and timely communication of the information, documents and records the public organizations and institutions may request from them for supervision and control purposes in accordance with the laws and regulations.

1. Relations Between Banks

Banks should conform to the following principles in their relations with each other:

Exchange of Information

Banks should carry out all information exchanges between each other on all possible subjects authorized under the laws and regulations accurately and systematically.

Personal Behaviors

Banks should avoid all kinds of practices and applications that may cause unfair competition on the employment of the personnel.

Competition

Banks should take the competition as a contest which is in compliance with the laws and regulations and which helps the individuals make their free economical decisions from among all banks in the banking industry. Therefore, during all their activities within the free market economy, all banks should avoid statements and behaviors that may cause unfair competition, as a requirement, aside from their own interests, of the following principles and objectives too:

1. a) A continued public trust for the banking sector in general,
2. b) To work for the development of the banking sector, and
3. c) Observing the common interests of all banks.

These principles apply also to the statements and behaviors of the banks’ employees just like the legal personality of the banks. Banks should allow offer/provide benefits to employees of another bank in the course of offering or rendering their services to their customers.

Advertisements and Announcements

Banks should act honestly, realistically, and in compliance with legal regulations and with the general moral principles during their announcements, advertisements and notices under the publicity and advertising activities regarding their banking products and services as well as their own financial structures, and they should avoid all acts and behaviors that may damage the reputation of the banking as a profession.

They should ensure that their announcements, advertisements and notices do not contain any statements or expressions degrading or humiliating other banks, or the products and services of other banks.

1. Relations of Banks with Their Customers

Banks should observe the following principles in their relations with their customers:

Informing the Customers

Banks provide accurate, complete and timely information to their customers regarding all kinds of products and services they offer to them in all phases of such service relationship and on all subjects by also complying with the limitations stipulated under the laws and regulations.

Secrets of Customers

Banks are obliged to keep confidential and maintain with due diligence all customer information and documents, and not to show such information and documents to persons other than the persons and authorities who are explicitly authorized to request to see them under laws.

Service Quality

Banks should assume the service quality as a precondition of meeting the requirements and expectations of their customers. They should do their utmost for the employment of the two fundamental elements of this concept of service quality, the technological infrastructure, and qualified human resources, in a way to lead to a continuous improvement and betterment of the service quality.

Banks should offer the same quality and the same level of service to all their customers. However, differentiating the organizational structure and product range in accordance with an identified target market, or adopting different approaches to the customers in different risk groups can not be interpreted as a discrimination or categorization of the customers.

Customer Complaints

Banks should establish a system in order to respond all and any kinds of questions of their customers stemming from the services offered, and should accordingly inform their customers about this system.
They should investigate the causes for the customer complaints, and implement the measures required for preventing the fair complaints from repeating. They instruct their employees for the correction and non-repetition of the complained, wrong practices.

Security

Banks should recognize that the concept of “Security” includes all measures towards the protection of all and any service mediums of the bank in banking sector against any adversities, as well as the prevention of all violations that may bear technical hazards in the services offered to the customers.

They should take all technical and legal measures required for ensuring transaction security in all service mediums, a requirement further highlighted by newly-developed services and changing service channels prompted by technological improvement and electronic banking. They should inform their customers about the measures they take, and the measures that should be taken by their customers.

1. Relations of Banks with Their Employees

General Employee Qualities

 Banks should be aware that they should show due diligence in order to ensure that their employees possess the knowledge, background and a sense of responsibility required by their jobs. Banks can not employ persons who fail to comply with the legal conditions specified under the laws and regulations, mainly under the Banking Law.

Employment and Career Development

Banks should offer equal possibilities to their employees without any discrimination in terms of both during their recruitment and during their career development following their recruitment. They should, in line with the principle of managing the human resources in the best possible way, offer trainings, courses, seminars and similar opportunities to their employees in order to ensure that they reach to the level necessitated by the times and by the banking profession.

They should take into consideration the commitment to banking ethics and the diligence shown in implementation of these principles as well as the knowledge, skill and individual achievement during the promotion decisions of their employees.
 

Representation and Working Environment
 

They should introduce internal regulations requiring that their employees look neat and clean in conformance with the reputation of the banking profession and also with the awareness that they represent their banks.
They should implement measures as required for the improvement of the motivation of their personnel involved in all service units and for their offering services in better conditions, and so ensure a healthy and convenient working environment.
 

Work Hours

Banks should show due diligence for the employment of the sufficient number of personnel required by the workload, organize their employees in a way that they yield maximum productivity during the working hours, and show utmost efforts for preventing overtime work and for their employees use their annual leaves regularly.

Relations of Employees with Customers

Banks should introduce internal regulations providing sanctions and measures for the prevention of their employees from:
– Being involved in relations with the customers such as borrowing-lending, being guarantor and opening joint accounts with the customers which relations cannot be explained under ethical principles,
– Accepting presents from the current or potential customers of the bank, or
– Deriving personal benefits from both their job potentials and from the business potentials of their customers by using their status.

Employees’ Rights

Banks should work for the timely and complete satisfaction of their employees’ rights stemming from the provisions of the laws and regulations to which their employees are subject.

VII- Professional Rules and Ethical Principles All Bank Employees Should Comply

Professional Rules and Ethical Principles The Bank Employees Should Comply Bank employees are required to comply with the following obligations:

1. a) To comply with the applicable laws and regulations during the performance of their duties,
2. b) To inform their customers about the benefits and risks of the products and services offered to them,
3. c) To offer unbiased and fair service to their customers receiving the same services,
4. d) Not to disclose the secrets of their customers and the banks which they come to learn by virtue of their positions and titles to anyone other than those persons and authorities who are explicitly authorized under laws,
5. e) Not to cause any loss of reputation of their bank during their works and attitudes,
6. f) Not to be engaged in any activity that can be classified as “Commercial Enterprise” or “Merchant Enterprise “,
7. g) Not to behave in contradiction with the principles of justice, integrity, honesty, reliability and social responsibility,
8. h) To cooperate with other employees for common purposes through building a courteous and diligent communication during their fulfillment of duties,

ı) Not to use the bank’s assets and resources unproductively and outside the designated purpose,

1. j) Not to derive any personal benefits both from their own job potentials and from potentials of their customers by using their positions and titles,
2. k) To refuse all such benefit offers immediately and to inform such offers to the competent authorities and to their superiors,
3. l) To direct the potential customers mainly and first to their own bank,
4. m) Not to be involved in relations with the customers such as borrowing-lending, being guarantor and opening common accounts with the customers which do not correspond with ethical principles,
5. n) Not to accept presents from the current or potential customers, other than those presents accepted by the bank personnel under the established practices in the bank,
6. o) To be aware of his accountability regarding the duties assumed during the performance of the services,
7. p) Not to assume any position in any private and public organization other than associations, foundations, cooperatives, and similar organizations without the approval of his bank.

Ethics in Islami Banking:

Established with the avowed goal of values based banking, Islamic Banks now occupy an important place in Bangladesh. These Banks occupy a large share of deposit and credit in the banking sector. Ethical practices is more prominent in Islamic Banks than conventional Banks. Only “end justifies the means’ is not enough in Islamic Banks. Here means must be justified. Making profit by investing in sector harmful to the society like manufacturing wire and cigarettes is not considered in Islamic Banking. Individual who work hard are more service oriented  & well  behaved, charge fair prices, pay others their dues and are inspired by Islamic ideals, Because of religious sprit the employee are mostly self-propelled good in morality. These Banks are, however lacking in doing the Baking fully true to the spirit of their great religion due to existing socio-economic condition. For example, the share of profit loss sharing finance in total investment is very negligible.

Ethics in Banking in Bangladesh:

Govt of the People’s  Republic of Bangladesh Central Bank Bangladesh Bank and other regulators are of late became very critical to ensure ethics  in Banking in Bangladesh and among others has successfully implemented  as follows :

1. Each Bank has laid a comprehensive code of conduct.
2. Complaint desk and box has been implemented in each Bank.

lll. Introduced National Integrity Strategy and Strengthened monitoring to implement the strategy.

1. To reduce the manifest injustices Central Bank has given number of directives: Licenses are issuing for opening more branches in rural areas, minimum 2% of the total portfolio must be invested in Agriculture Sector at lower profit rate of 13%

v.SME Financing has been encouraged and minimum 20% of the total portfolio are required to invest in SME Sector.
Vl. Refinance has been established investment in certain enterprise. For example financing women entrepreneur is backed by refinance.
Vll. Consideration of large loan / investment and in certain one sector is strongly discouraged.
Vlll.Rescheduling of habitual defaulter cases, fund diversion cases and other credit indiscipline case has been prohibited.

1. Introduced Green Banking to ensure healthy environment.
2. Discouraged unhealthy competition and taking over of bad loans/investment of other banks.
3. CAMELS rating of Banks has been given more significance to measure ethical standard of a Bank.

Conclusion:

Ethics in banking should not be misconstrued as a nnever-endingjourney for an unattainable perfect situation. In the spirit of Amartya Sen’s idea of justice, ethics in banking should be interpreted as continuously evolving compulsions that are incomplete but realizable. From this perspective, ethics in banking may be divided into two categories: (1) primary ethical obligation of ensuring the integrity of financial intermediation, and (2) the secondary ethical obligation of reducing what Sen (2009) calls ‘manifest injustice’. Some of these manifest injustices arise from the operations of the banks themselves, such as providing too much credit to too few rich persons, and too little to too many poor people, taking too much risk with other people’s money, and provision of finances to businesses that contribute to environmental degradation and other unethical activities. In banks, ethical compulsions will have to be enforced at all levels corporate, collective and personal.
The soundness of banks is important not only from ethical point of view but also from the practical economic angle. Panic in banks is a sure recipe for macro instability. As a result, the safety of banks can never be left solely at the discretion of their owners and top management. Elaborate regulations backed by strong central banks and other supervisory agencies have been established in financial sector in most countries. This has not at all eliminated the threats of bank runs and insolvencies. Laws are not enough to reduce risks to banks. The persons behind the corporate veil should also be made accountable

A survey of ethical problems in banking sector in Bangladesh suggests that both conventional and alternative financial institutions in Bangladesh are beset by ethical dilemmas.  The insider -lending, political patronage and corruption undermine the soundness of most conventional banks. On the other hand, many alternative financial institutions like microcredit and Islamic banks have degenerated into commercial and cosmetic operations. To ensure the soundness of banks in Bangladesh, the issues of ethical climate in the country as a whole will have to be addressed. The major recommendations of this paper punishment for financial swindles and willful large loan defaults, revamping deposit insurance, improvement in the quality of directors in banks by specifying more stringent qualifications and making members of political parties ineligible for bank boards. The CAMELS ratings of Bangladesh Bank should be published. Code of Conduct should be laid down for bank employees and mechanism for attending to customer complaints should be strengthened. In fire the existing laws, rules and guidelines should be strictly enforced. Obviously, ethical compulsions of Bangladeshi banks are not fixed; they would undergo metamorphosis in response to demands of time. The ethical dimensions of banking operations in Bangladesh should be continuously monitored by the Central Bank, banks themselves, academicians, researchers and civil society, The important thing is not to compile a complete catalog of what needs to be done but to initiate prompt and effective action in areas where something could be done.