Accounting

The woes of the banking sector have just refused to go away. They were initiated by the global economic credit crunch which progressed and moved away from the financial sector to affect most other sectors of the US economy. While on the brink of collapse, most of these troubled banks have had to seek the lending hand of the government in order to fight their way out of the economic quagmire. The critical issues that have emerged from these events have centered on how, if at all, the government had to recognize the really deserving cases and as such help such people out with taxpayers money. Also important was what role these banks will pay in the repayment of the money (Sydney Morning Herald 2009). As the controversy has been raging on, banks have found themselves having to account for some of their historical practices especially that of awarding top executives huge bonuses. This essay critically responds to an article published recently highlighting the state of affairs in the banking sector in the US.

    This article focuses on a couple of interrelated issues that have been taking place in the recent past in the US banking sector. These issues are contained in a report that was released regarding the banking crisis that followed the global economic melt-down. The first issue is that of having to bail banks out of the eminent collapse that was occasioned by the global economic crisis, and was especially severe in the banking sector (Sydney Morning Herald 2009). The other issue being addressed is that of the specific banks and the specific amounts that they have been paying out to their top executives as bonuses. The main focus of the report lies on the fact that while some banks were on the brink of collapse and required government funds to bail them out, they were never paying any attention to the fact that they were really adding more financial strain to themselves by having such large volumes of money given out as bonuses.

The Stakeholders and the Ethical Dilemma
    The article gives a detailed list of the main banks that were noted to have engaged in this habit of careless trading practices whereby they continued with the unethical practice of paying out huge bonuses, some of the payouts coming too close to what the banks actually required to stay afloat in business. Some eight banks, most of which are based in New York, are known to have received a combined sum of about 175 billion US dollars through the infamous Troubled Asset Relief Program (TARP) while they shamelessly managed to pay out bonuses to their top executives amounting to some 32.6 billion US dollars. The report was compiled by the New York attorney General (Meyer 2009).

Apart from the banks the other stakeholders in the saga are the federal government and Congress both of who feel banks are going too far and are too wiling to engage in what is being referred to as risky behavior (Sydney Morning Herald 2009). This behavior is being seen as inherent in the nature and manner in which these banks acted in the face of trouble. The taxpayers are also another group whichis very much affected by such moves. The main ethical dilemma is the habit by banks to continue paying out huge bonuses to their top executives while at the same time expecting taxpayers to pay in order to help salvage the banks from going under with debt. It defeats logic that such a move could be taken without any restraint. It is unethical in the sense that such huge bonuses are risks that the banks knowingly exposed themselves to, and as such they ought to have regretted their moves and shied away from seeking help from taxpayers (Sydney Morning Herald 2009).

To add to these, there is the issue of morality in compensation or rewarding of performance, and this entails rewarding or giving gifts when the performance is good and withholding when performance is dismal or below the expected standards. To this end, it was very unethical for the banks to go ahead and reward their top executives huge bonuses when actually these executives were responsible for running the banks into the mire of economic decline. Such bank executives ought to have been punished for their mistakes and not rewarded with taxpayers money (APES 110 2006).

The article, however, does not contain all the facts that are necessary to give the reader an informed position. Critical facts like who the beneficiaries of these huge bonuses are and what role they played to deserve such generous handouts are lacking. There is also the conspicuous absence of the actual amount that went to each executive. Missing too are the details of the executives who returned either part of or all the money they had received as bonuses. Finally, there is no mention in the report of the conditions that were agreed upon between the banks and the government before they were given the money they needed.

APES 110 Application to the Situation
    There are a number of the fundamental principles that would be seriously breached if APES 110 could be applied to this situation (APES 110 2006). This is either because something wrong was done when it should not have been, or some course of action that was deemed necessary for one or more stakeholders was not carried out as expected. In essence, the fundamental principles of APES 110 require that there be a total keeping of the principles. There is punishment for both committing offences and failing to do the right thing. In this case, there was a breach of the principle that requires that all actions ought to be performed in the interest of the public (APES 110 2006). The bank executives failed to do that but instead received huge bonuses in spite of the outcry from the public.
In addition to this, by continually accepting to take bonuses, they endangered their banks. Secondly, the banks can claim to have had a contractual responsibility to pay the bonuses to honorable members of the banks. However, according to APES 110 principles, it is never acceptable that one acts contrary to expectations and cite acting in an honorary capacity as the cause of the action. To that end, the banks ought not to have continued to pay the bonuses when they realized it was contrary to the will of the majority of the people, and the recipients of the bonuses must have declined or refunded the money due to the public outcry. Both the banks and the top executives who received the bonuses did not act with integrity but were determined to get their interests served at all costs (APES 110 2006).

Teleological, Deontological and Virtue Ethics
    The decision by the banks named in the report to pay out huge bonuses to top bank executives failed to adhere to the teleological, deontological, as well as virtue ethics as would have been required by the acceptable and laid down principles and guidelines of APE 110. Teleological ethics were contravened in that the banks paid out the bonuses for a purpose other that what was very important at the moment (APES 110 2006).

The purpose was to have a few bank executives enriching themselves from the efforts of other people - the tax payers (APES 110 2006). That aside, the application for TARP by these banks was for a selfish motive that only focused on ensuring they remained afloat regardless of their risky business behaviors. These banks also failed to follow the virtue ethics that require that there be a considerate treatment of the people to be affected by a decision.  By paying out the bonuses even when there was a grieving public that had no hand in the woes of the banks, there was a gross violation of virtuous considerations for the public.

However, there was an adhering to the rule of the game by the banks in all they did. In essence, the deontological ethics which require that a decision carried out must follow certain laid down rules were adhered to (APES 110 2006). The banks are obligated by contract law to pay these bonuses and it was ethical to honor that even though it was hugely an unpopular move. By following the previously laid down rules, the banks were just being ethical as was required by banking law regarding bonuses. This is all the prevailing conditions notwithstanding (APES 110 2006).

Alternative Courses of Action
    Given the gravity of the matter as can be demonstrated by the huge public and government interest, I believe a lot ought to have been done to avert this critical situation where taxpayers were left baying for the blood of those beneficiaries of the bonuses. The first alternative that I could have recommended is for Congress to have foreseen this trend of top bank executives being paid huge bonuses without really basing this on their merit and responded by passing legislation to block or limit the payment of such. Although it is a bit too late, most of the beneficiaries already having spent their money, the legislation can still be passed. 

The advantage of there being a law that governs the behavior of banks especially one with a focus on the amount to be paid out as bonuses is that such banking crises as has just been witnessed will be minimized. Then there will be no requiring of the public to fund banks for their irresponsible behavior. However, this approach has the risk of making bank officials to lose morale at work and most likely quit the practice. This is because the bonuses are largely to motivate employees through rewarding their efforts. Another disadvantage of this approach is that it will limit the innovation and competitiveness of banks due the increased political meddling and poor performance on the stock market due to negative forecasting (Arcega 2009).

Another possible alternative could have been to ask the bank executives to postpone their collection of the bonuses until such a time as when there was less strain on the banks financial base. The advantage of this approach is that there would never be the need to get into so dire a financial position that would call for resorting to seeking financial assistance in order to come out. The disadvantage is that the banks could find themselves liable to legal action owing to failure to honor their contractual side with the executives (Reinhart 2009). The result could be both a loss of more money in terms legal fees and compensations and probably the loss of skilled human resources.
 Finally, another possible course of action would entail having a central authority mandated to oversee and monitor the operations of banks and other financial institutions. This has the advantage of limiting too much political meddling and so averting negative publicity of banks while ensuring that they operate within recommended guidelines and limits especially as far as risk mitigation is concerned. This alternative, however, will likely cause a case where most banks are less prepared to lend for fear of losses, a trend that will ultimately result in other banking crises (Reinhart 2009).

    The banking crisis in the US has taken a critical turn where the main players are trying hard not only to get back after a past season of loss-making occasioned by the global economic crisis but also by the crackdown that has been launched by the Congress to have a limit put on the amount of bonuses that banks are allowed to pay to its executives. This comes in the wake of the release of a report that sought to investigate the issue of bonuses especially with respect to eight banks that were able to get government help in order to break free from the crippling effects of the banking crisis. This followed an outcry from the public regarding the rationale behind such a move to bail the banks out of a hole they had willingly gotten themselves in by continuing paying out huge bonuses and taking on other risky banking practices. As the debate rages on, it remains to be seen what will become of the US banking sector.