Traditional Banking Essay Example for Free

Traditional Banking Essay The article â€Å"The decline of traditional banking: implications for financial stability and regulatory policy† by Franklin R. Edwards and Frederic S. Mishkin presents a very detailed and well researched exploration of the current movement of banks away from traditional banking. The authors describe their objectives as including an examination of the reasons behind the decline of traditional banking, and an identification of the effects that these would have on the stability and regulation of banks. The article meets these goals well, as it begins by demonstrating the complexity of the current banking situation and how/why balance sheets reflect information that go far beyond mere lending. The non-traditional methods of banking as well as the financial institutions that have evolved and crowded the banking market are also explored in detail. Finally, the authors expound on the ways that banks might improve their status in the financial market and maintain stable regulatory policies within such a highly competitive and unstable environment. Therefore, while in some areas the explanations were a bit awkward, overall the authors manage to unite the causes, effects, and possible remedies of the current problems being faced by banks, and this is done in a manner that demonstrates a deep understanding of the situation. The introductory pages of the article do give a very detailed picture of why the authors found it necessary to explore the decline of traditional banking. Traditional banking, they explain, dealt mainly with the issuing of long term loans financed by short-term deposits (Edwards Miskhin, 27). They provide evidence in the form of graphs and statistics, showing both the size of the decline in earnings from such traditional (financial) borrowing, as well as the share of non-financial borrowing granted banks and their competitors. The fact that both commercial and thrift banks’ non-financial borrowing declined by an average of 7% over a thirty-five year period demonstrates that significant decline has indeed taken place in their share of that market. The authors also give concrete evidence concerning the decline in these institutions’ returns on such holdings as assets and equity. Finally the authors demonstrate the trend in banks’ share in the market concerned with non-interest income. This increasing trend represents precisely the move away from tradition they have identified. The placement of these facts and charts was effective as a method of vindicating the authors’ decision to explore reasons for the decline in traditional banking. Edwards and Mishkin   go on to explore such areas as the decline in banks’ advantage as far as liabilities are concerned. This is demonstrated in terms of declining cost advantages, which as shown to have become a reality when other institutions found a way to capitalize on the banks’ financial privileges. They explained the fact that ceilings and other restrictions (at one time favorable to the banks) had been placed upon their ability to offer interest on certain types of deposits (such as checkable deposits). These regulations restricted their ability to be competitive at a crucial time in the market and therefore opened the doors for other lending institutions (exempt from such restrictions) to attract customers by offering higher interest. This serves as a cogent explanation of why banks have declined in this traditional area. Yet, the authors represent the complexity of the market by exploring a few other reasons why such decline has taken place. The existence of the new paper market (securities) has also been cited as a reason that adds to the complexity of the problem that banks now face (Edwards Miskhin, 31). The previously mentioned decline in banks’ lending to commercial entities is now explained by the fact that these businesses have been given the option of borrowing directly from the public through the issuance of securities. The authors also cite the rise of mutual funds and junk bonds on the money market as having an indirect effect on the market position of banks. They write, â€Å"The growth of assets in money market mutual funds to more than $500 billion created a ready market for commercial paper because money market mutual funds must hold liquid, high-quality, short-term assets† (31). This serves the explanatory purposes of the authors by demonstrating the sheer size and number of the alternatives to banks that exist on the financial market. The authors, Edwards and Mishkin, also explore some of the reasons why such alternative institutions have become such a threat to banks. Besides their ability to offer attractive alternatives to customers, these financial institutions have also demonstrated an ability to secure their assets. They explain these institutions’ methods of originating loans and then creating more loans from these. They write: â€Å"Advances in information and data processing technology have enabled non-bank competitors to originate loans, transform these into marketable securities, and sell them to obtain more funding with which to make more loans† (Edwards Miskhin, 32). The rise of financially capable technology has made easy these maneuvers by such non-bank facilities, and this has led to the current position of decline in banks’ traditional activities. The authors of the article also demonstrate the route that banks have had to take in order to combat the effects of being forced to share their market. They use graphs and data effectively to demonstrate the sharp climb in what had traditionally been considered risky types of loans. These graphs depict a rise in bank issuance of real estate loans, and further details the authors provide demonstrate that banks have had to stoop to lending to â€Å"less credit-worthy borrowers† in order to increase their financial viability in these tough times (Edwards Mishkin, 27 33). They also depict the methods chosen by banks to increase their activities that take place off the balance sheet. Banks have expanded into the market for financial derivatives, in which they serve as â€Å"off-exchange or over the counter (OTC) derivatives dealers† (34). In order to increase the authority of the article, the writers then provide in several charts concrete evidence of the different kinds of derivative deals in which actual banks have recently participated or mediated. Further evidence concerning the proportion of income banks have derived from these off-balance transactions serve to depict the extent to which they have effaced or replaced traditional banking. Edwards and Mishkin’s exploration of the nature of the risk faced by these banks in involving themselves in OTC activities demonstrates the extent to which these institutions have been forced by a declining traditional market to engage in alternate financial activities. Since their derivative activities have mainly been in the area of swapping interest rates, the risk involved in this can be seen to be high—though tempered by the fact that they â€Å"do not involve payment of principal amounts† (Edwards Miskhin, 38). Furthermore, the authors’ detailed explanation of swaps and the risks they carry aid the overall understanding of the type of risks banks have been forced to take in order to retain their profits. This leads to a better understanding of the extent to which traditional banking has been transformed. Finally, the authors Edwards and Mishkin go on to outline the regulations that have been put in place and the implications that they are likely to have for bank policies. The need for regulation is expressed in the evidence they produce from the GAO (U.S. Government Accounting Office). It explains that the discounts and insurance provided by Federal Reserve Bank accords to banks a level of security that might induce them to take higher risks that they would (or should) otherwise have taken. Regulations have therefore been made that allow only banks with good management and high capital to engage in some of the riskier types of non-traditional banking activities. Such activities include securities underwriting and trading, and dealing in the derivatives market. The inclusion of these explanations in the article demonstrates the thoroughness of the authors in identifying other reasons (beyond mere competition) why some banks have been or may be forced out of the financial business. The details of policy implications for banks given by the authors are shown to include regulations that strengthen banks’ ability to compete. These measures have also been shown to include the seeking of methods that prevent the fall of capital below certain levels (Edwards Mishkin, 40). In presenting the pros and cons of these ideas, the authors demonstrate and impart a thorough understanding of the intricacies of banking and further communicate the complexities of the business. The writers, through their efforts, also demonstrate the gravity of the situation that banks now face in their need to write policy giving them the ability to expand beyond their traditional financial market. Despite the overall clarity and detail of the ideas presented in support of the authors’ claims, a level of awkwardness does enter into a few paragraphs of this article. The awkwardness within this article mainly exists in the introductory pages, where Edwards and Mishkin enumerate (rather than explore) the reasons for and the extent of the decline in traditional banking. The confusing nature of the financial situation being faced by banks is translated to the work, as the writers continually meet their given reasons with qualifications to the effect that demonstrate the inadequacy of each explanation. They, for example, identify their measure of banks’ profitability over a period of time as â€Å"crude† and explain that other measures do not â€Å"adjust for the expenses associated with generating noninterest income† (Edwards Miskhin, 29-30). One gets the feeling that the writers might have taken the trouble to do the extra calculations in order to provide a more comprehensive view of the situation. However, they do provide much more detailed explorations in the ensuing paragraphs. This article by Edwards and Mushkin presents a very interesting and informative view of the current situation facing banks in today’s financial market. The traditional role usually occupied by banks as lenders has been undermined by the influx of non-traditional lending institutions. These institutions have taken the opportunity to provide lower-interest loans and higher-interest deposits to customers, thereby forcing banks to flee to riskier methods of gaining revenue. Policies that regulate banks’ behavior have become necessary as a result of this trend toward riskier business, and this has sparked ideas concerning policy making and the risks and benefits they would impart to all stakeholders. Work Cited Edwards, Franklin R and Frederic S. Mishkin. â€Å"The decline of traditional banking: implications   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   for financial stability and regulatory policy.† FRBNY Economic Policy Review. July (1995): 27-45.

Effects of Industrialization and the Conditions of the Working Class in

Effects of Industrialization and the Conditions of the Working Class in England In the middle of the 19th century the industrial revolution was flourishing in England. With all of the advancements in machinery there would be new opportunities and drawbacks for citizens. Many would leave their lives on the farms and work in factories with unsafe settings. Karl Marx felt that the new advancements in society were able to support the fourth stage of human development, Communism. Along with these new advancements the people would have to learn how to self-govern themselves in the workplace and understand their new responsibilities. England possessed the right settings for the autonomous operation of the economic forces that generated industrialization. Before the industrial revolution England was mainly an agrarian society. Then there was a radical change that moved the citizens from farms and into cities. With the large rise in England’s population there was also a larger demand for goods. There was a necessity for quicker and more efficient methods of producing those goods. During the beginning of the 19th century there was a large push of inventions to help create a more mechanical society. By 1848, when the "Communist Manifesto" was written, machinery had already been assimilated into society.1 The industrial revolution made transportation, commerce, and communication more accessible to the masses. Britain already had many navigable rivers and also utilized the inventions from the revolution to improve even more.2 One of the biggest contributions to those was that of the steam engine. Thi s invention was the first automatic machine that allowed people to work uninterrupted for longer periods of time, ... ...k : Longman, 1985),3,32. 2. Kevin Kitano and Anthony Morejon, "Essay on the Industrial Revolution," 2 November 1997, <http://members.aol.com/mhirotsu/essay.htm> (23 October 2001). 3. Sidney Pollard, Peaceful conquest : the industrialization of Europe, 1760-1970 (New York : Oxford University Press, 1981),22. 4. Donald L. Donham, Studies in Marxism and Social Theology: History, Power, Ideology (Cambridge: Cambridge University Press, 1990), 60-61. 5. Kevin Kitano and Anthony Morejon. 6. Karl Marx, Manifesto of the Communist Party. 7. Pollard,27. 8. Kemp,5. 9. Kevin Kitano and Anthony Morejon. Links: http://www.neo-tech.com/businessmen/part6.html http://www.yale.edu/ynhti/curriculum/units/1981/2/81.02.06.x.html http://www.wsu.edu:8080/~dee/ENLIGHT/INDUSTRY.HTM http://members.aol.com/mhirotsu/kevin/trip2.html

Ethics on Smoking Industry

INTRODUCTION: Ethics occupy an important place in today’s modern business world. Every organization makes use of ethics to make day-today decisions and fulfill societal expectations. This essay brings to light ethical and social responsibility that every individual and company should follow in order to become better citizens for society. Essay presents analysis based on real case of Philip Morris, a tobacco company in U. S. A versus Mayola – a widow, who took legal action against company for her husband’s death due to smoking. Essay draws balanced argument based on evidences about unethical behavior of tobacco company and smokers personal responsibilities for their actions. We have used Ethical decision-making model of Lagenderfer and Rockness to frame our analysis. ETHICS & BUSINESS Ethics in simple terms means set of moral principles or list of rules, which can determine whether particular action undertaken is ‘right’ or ‘wrong’. All the activities undertaken by society are based on ethics. Ethics can be personal as well as professional. Personal ethics are based on individual’s values, beliefs, attitudes and actions while business ethics are based on certain principles or code of conduct to guide individual or a group in accordance with societal expectations. Business ethics can be defined as â€Å"study of business situations, activities and decisions where issues of right or wrong are addressed†(Crane, A& Matten ,D, 2007,P. 5). Thus, ethics helps in making decision and is a key for solving problems. Today, society is facing considerable increase in number of ethical issues such as fraud, exploitation, misleading advertisement and increasing pollution. Birt, Chalmers, Beal, Brooks, Byrne, Oliver, 2008, P. 65). CORPORATE SOCIAL RESPONSIBILITY It is essential for every organization to undertake corporate social responsibility along with its goals and objectives. According to (Birt et al. , 2008, p. 70) Corporate social responsibility can be referred to responsibility that an entity has to all its stakeh olders, including society in general and physical environment in which it operates. There are many companies, which lack sense of corporate social responsibility and acts against interest of society. RELEVANT FACTS DETERMINED UNDER CASE: Today, business is giving rise to numerous ethical issues, as many companies are involved in exploiting its customers, selling harmful products in markets, false marketing of products and increasing environmental and health issues. Many tobacco companies like Phillip Morris are selling harmful and addictive products like cigarettes that cause serious diseases like lung cancer and heart attack. Analysis of Phillip Morris v. Mayola, Williams case brings down certain relevant facts that give rise to ethical issues. Mayola took a legal action on Philip Morris on the grounds of false and misleading advertisement and marketing undertaken by company for its products. It is fact that Philip Morris knew that tobacco was harmful for health still he advertised his product as non-addictive and safe and Williams death was caused by smoking. Second, fact is that Philip Morris appealed solely against damages that company had to pay to other smokers who did not bring any actions against court. Their appeal was only based on excessive damages that company was supposed to pay to strangers. This clearly indicates that he is very well aware of harms caused by his cigarettes to smokers and did not appeal on the grounds that his products were safe and less addictive. It is also relevant fact that Supreme Court made decision in favor of Philip Morris that company is not liable to pay excessive damages to Ms Williams on the grounds that damages were proper under Oregon statute but was excessive under federal constitution (BBC article, 20 Feb, 2007). This indicates that ethical laws are still complex and not clearly stated under constitution. ETHICAL DILEMMAS FOR BOTH SMOKERS AND COMPANY: Ethical dilemma arises when there is a situation with conflict of interest. We have built certain arguments based on ethical dilemmas from perspective of both smoker and company. We have constructed evidence-based arguments on unethical behavior by Philip Morris Company, which includes major ethical issues, such are selling harmful products, misleading and false advertisement, acting against societal expectations and caring out unethical business practice. Company is involved in producing and selling harmful tobacco products that contains high amount of nicotine, are addictive, and can cause serious health issues such as lung cancer and heart attack. Company acts unethically by encouraging people to smoke and their conflict of interest with societal ethical standards and expectations. According to (Janine and Ruth, 2008) company prevents old smokers from quitting and targets young people and children. Company adopts new and innovative marketing approaches to promote its products like direct mail advertising and sending coupons with discounts. Low tar† cigarettes were developed in response to the health concerns of older smokers in 1970, but experts found them no advantageous to health and did not help smokers to quit. Company lacks in corporate social responsibility as they perform activities that are against interest of society in general and physical environment in which it operates. Company undertakes massive fraud by acting d ishonestly having financial motive in mind. Company is involved in false advertisement indicating their products to be less addictive, more filtered and safe. According to ( Rosner, 2006, P. 193-196) company tries to create illusion by sponsoring cigarette cessation programmes and try to make society believe that they act in ethical way, but their real motive behind it is to promote company’s goal of selling cigarettes and meet their financial interests . Their misleading marketing activities makes lots of people to go for smoking. Philip Morris promised to shut down instantly if their cigarettes were found to be harmful but has failed to keep its promise, which gives rise to ethical dilemma. According to (David & Silva, 2004, p. 9-22) Company uses their political and economic influence to create an environment that encourages continued consumption of cigarettes. Company is accused of political lobbying. They lobby legislators and officials in finance ministry in order to keep tobacco prices low and thus encouraging people to smoke. Philip Morris was after minimizing total tax burden on cigarettes in order to keep smoking affordable . Article in Ethical Corporation magazine (2004) states that company declares itself responsible and argues that there is increasing demand for cigarettes by customers and if they stop selling it, someone else will take their position. Company tried to safeguard themselves on the grounds that they are selling legal products, which are not banned by government and are acting in ethical way by warning its customers against dangers associated with smoking. Thus, company gives rise to ethical dilemmas as it has an intension to make huge profits by selling harmful products that are responsible for death of millions of people and still trying to gain creditability as responsible company. From perspective of smokers in general, they give rise to ethical issues by consuming harmful products that are not ethically accepted by society and do not take warnings given by companies and government seriously. It is unethical to blame companies solely responsible for damages caused to them and bring their own actions against company. Their behavior can give rise to ethical dilemmas as their actions have a deep impact on their children and makes smoking more desirable for their kids in future. They also lack in personal and social responsibility by giving rise to health issues and environmental concerns for society in general. CONCLUSION: Thus, we conclude that tobacco is one the world’s greatest preventable health problems. According to our analysis, we came to a balanced conclusion that smokers should take responsibility for their actions and companies should behave ethically by making its customers fully aware about the dangers of smoking. It is very essential to undertake combined ethical and social responsibility by both smokers and tobacco companies to avoid millions of deaths due to smoking and to act in favor of societal expectations. Tobacco companies should stop giving misleading advertisement and marketing activities, which indicates their products to be safe and less addictive. They should stop encouraging consumption of tobacco among young and old and should ban children from its consumption. It is the responsibility of companies to support smoking cessation programs and help smokers to quit not just for sake of creating illusion but also to act in favor of societies interest in general and to build better image in society. Company should change their unethical business practices of creating massive fraud to fulfill its financial motive and provide support to government activities that help smokers to quit. Smokers should follow their personal ethics and should take responsibility for smoking. They should take warnings given by tobacco companies and government to quit smoking seriously. They can search on internet for more information or consult doctor to improve heir knowledge about serious health issues caused by smoking. Smokers should not escape from their personal and social responsibilities towards society and their families. It is unethical to bring their own action against company and solely blame company for health issues caused by smoking. It is moral duty and responsibility of every citizen to bear risk associated with their actions. It is responsibility of government to take care of its citizens and find solutions for their health relating issues. We believe that Political parties should not accept any funds from Tobacco Company for their campaign and government should ban any kind of commercial ads for cigarettes in magazine, newspapers or on television. Government should support smoking cessation programs and quitting and should be alert if tobacco company provides any support as they may mislead government by doing indirect advertising for their products. We recommend that there should be strict tobacco control strategy that restricts consumption of all tobacco products. Thus we conclude that it is ethical, moral and social responsibility for smokers, tobacco companies and government to stop consumption and selling of harmful products for betterment of society and environmental concerns. REFERANCE )Birt, J. ,Chalmers, K. ,Beal, D. , Brooks, A. , Byrne, S. , & Oliver, J. (2008). Accounting: Business Reporting for Decision Making. (2nd ed). John Wiley & Sons: Milton, Old. 2)Crane, A. , Matten, D. (2007). Business Ethics: Managing Corporate Citizenship & Sustainability in Age of Globalization. (2ND ed). Oxford University Press: New York. 3)David, A. , Silva,V. ( 2004). Building Blocks for Tobacco Control: a handbook tools for advancin g tobacco control in xxist century. Publisher World Health Organization: Geneva 4)Rosner, F. (2006). Contemporary Biomedical Ethical Issues and Jewish Laws. KTAV Publishing House: New Jersey 5)Janine, C. , & Ruth, M. (2008). False Promises: Journal of American Geriatrics, 56(9), p1716-1723, 8p, 1 chart retrieved on 5/ 09/2009 from Academic Search Premier Database. 6)Tobacco firm wins payout appeal: BBC news article https://news. bbc. co. uk/2/hi/business/6379767. stm retrieved on 6/9/2009. 7)Philip Morris executive declares his company ‘Responsible’: Article from Ethical Corporation Magazine: http://www. ethicalcorp. com/content. asp? ContentID=2345 retrieved on 8/09/2009.

Affirmative Action is Not the Answer Essay - 843 Words

Affirmative Action is Not the Answer Created in the 1960s, affirmative action programs attempted to undo past racial discrimination by giving preference to blacks and other minorities. The idea behind these programs was to help minorities gain the representation in the job market that paralleled their percentage of the population (Finley 1). Unfortunately, affirmative action has mutated into a thirty-year-old policy that places many underqualified minorities in positions over more qualified non-minorities. Preferential treatment of minorities has caused problems not only in the workplace, but also in our universities throughout the country. Due to these current circumstances,†¦show more content†¦On the contrary, it has done exactly the opposite because affirmative action poses a conflict between two cherished American principles: the belief that all Americans deserve equal opportunities and the idea that hard work and merit, not race or religion or gender or birthright, should determine who prospers and who does not (Roberts 32). This leads to a series of problems at universities. For example, we cannot expect college students to see everyone equally unless everyone is considered equal when applying for college. Affirmative action has created a situation in which the minoritys society now tells them that if they will only designate themselves as black on their college applications, they will probably do better in the college lottery than if they conceal this fact (Steele 322). Remove the section on college applications titled Race, and consider students by their hard work in school, not by the color of their skin. 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