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Reassessing the Ethicality of Some Common Financial Practices

Author

Listed:
  • Bagus, Philipp
  • Gabriel, Amadeus
  • Howden, David

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

  • Bagus, Philipp & Gabriel, Amadeus & Howden, David, 2016. "Reassessing the Ethicality of Some Common Financial Practices," MPRA Paper 79800, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:79800
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    References listed on IDEAS

    as
    1. Bagus, Philipp & Howden, David, 2012. "The Continuing Continuum Problem and Future Goods," MPRA Paper 79595, University Library of Munich, Germany.
    2. 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.
    3. 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.
    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.
    6. Bagus, Philipp & Howden, David, 2013. "Some Ethical Dilemmas with Modern Banking," MPRA Paper 79599, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Jesús Huerta de Soto & Antonio Sánchez-Bayón & Philipp Bagus, 2021. "Principles of Monetary & Financial Sustainability and Wellbeing in a Post-COVID-19 World: The Crisis and Its Management," Sustainability, MDPI, vol. 13(9), pages 1-11, April.
    2. 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.
    3. Philipp Bagus & Amadeus Gabriel & David Howden, 2018. "On the Necessary and Sufficient Conditions for Legitimate Banking Contracts," Journal of Business Ethics, Springer, vol. 147(3), pages 669-678, February.
    4. repec:idn:jimfjn:v:4:y:2018:i:2j:p:1-32 is not listed on IDEAS
    5. Philipp Bagus & David Howden & Amadeus Gabriel, 2017. "The Hubris of Hybrids," Journal of Business Ethics, Springer, vol. 145(2), pages 373-382, October.
    6. Yaser Taufik Syamlan & Nur Istiana, 2018. "Does Fractional Reserve Banking System Exist In Indonesian Islamic Banking?," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 4(2), pages 369-400, November.
    7. Philipp Bagus & David Howden, 2023. "Consumer rights and banking contracts," Journal of Banking Regulation, Palgrave Macmillan, vol. 24(1), pages 105-114, March.

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    More about this item

    Keywords

    insurance; banking; fractional reserves; callable loans; perpetual bonds; callable loans;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General
    • K1 - Law and Economics - - Basic Areas of Law
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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