"Surname 1Name Instructor Course Date Unethical Banking Practices and BankruptcyINTRODUCTION1.1.0 Background InformationBanks play varied roles including serving as financial intermediaries in an economy bycollecting savings from units with surplus cash flows and redistributing those funds to thegroups, with deficits mainly private businesses, for the purpose of increasing their productioncapacities. It is imperative to note that, banks,through the intermediation function, not onlyearn the volume of their income through interest margins but also pay off returns to investors,reimbursing them for the opportunity cost of their money. For that reason, if any bank is notcapable of recovering the reserves it lends out, its survival as a going concern would bedestabilized. Moreover, it will also impair a bank?s capability to satisfy the withdrawal needs ofdepositors. Consequently, for any bank to perform very well in its operation, various issuesneed to be addressed primarily in the areas of ethics and professionalism.Most people think of ethics or morals as norms of conduct based on practical researchoutcomes.From an organizational context, ethics refers to a set of determinants of unethicalbehavior of employees that differentiates between acceptable and unacceptable behavior, thatis, that which distinguishes between right and wrong. Therefore it is more of a code of valuesof groups, societies or communities. The rule of thumb for a member in that it enables theperson within the community to choose between right and wrong in consideration of alternativecourse of action. Recently, in the Kenyan banking industry especially the deposit-taking banks haveborne witness to fraudulent transactions,staff abuse on client information, greed on the part ofexecutive officers and weak internal controls, have led to the central bank under theguardianship ofDr. Patrick Njoroge to intervene. This revealed the unethical behavior of bankemployees and the management.This research focuses on the findings of an empirical exploration into the unethicalpractices of Kenyan banks. The researcher outlines how the management of unscrupulousbanking practices in Kenya has gained particular attention in the recent past for several reasons.The focus of the investigation is on a three Kenyan Banks, but basically it may apply to mostbank profiles in the country.Particular attention is given to the influence of individualbehavior within an organizational context on the unethical practices in organizations.This research found out that unethical behaviour is widely responsible for the current financialwoes facing the Kenyan banking sector. The penalties imposed for unethical conduct seem tobe so weak, therefore leading to the recommendation of the need to promote more awareness ofthe operational Code of Ethics in the Banking Industry, believing that this may be the mosteffective way of encouraging ethical behaviour.Surname 2To curb catastrophic insolvency of banks, the Central Bank of Kenya could ensure thatstiffer penalties are obligatory on banks which flout practices by acting unethically. Suchsanctions should be sufficient enough to deter the rampant violations and discourage unethicalbehaviour in future operations of the banks. In general, findings in this research suggest that,indeed there is a need to appreciate and embrace ethical values by banks and deposit takinginstitutions in creating an ethically apt banking environment. Broad research reveals thataccountable and ethical business practices recompense in the long run in better employee andcustomer relations as well as the growth of societiesAn increasing number of surveys, academic research papers and commercial reportsshow the positive effects of responsible positive behaviour on business performance andstakeholder responses. This research is therefore intentional to present key ethical issues thatdeposit taking banks in Kenya should consider if they desire to contribute to the attainment ofethical banking in their industry and eliminate bankruptcy. It is this study's conclusive viewtherefore, that banks need ethics otherwise they will slowly run down. The research proposes aframework for ethical financial transactions in the industry. What is more, it recommends themeasures for taming unethical conduct. A major supposition derived from the study is thatcommercial banks need to adopt ethical values in their practices to create a morally inclinedbanking environment.1.1.1 Business ethicsBusiness Ethics is a subfield of applied ethics which examines ethical rules and values withina corporate context and the several ethical challenges that may arise in a commercial setting.According to Beer (1), business ethics is concerned with the behavior of the people,encompassing the aspects of right and wrong, as the firm pursues its strategic objectives. Thealso encompasses any special responsibilities or duties that apply to people engaged inbusiness. Ethical conduct in business corresponds with the philosophy of business, whichdefines the fundamental goals of a company.Business ethics refers to the process of weighing up decisions, either in advance orafterwards, with respect to the ethical values of society. Central ethical tenets includetrustworthiness, reliability, equality, social responsibility and culpability. Abiding by the lawis one rudimentary professional prerequisite for banks. The banks must also pay closeattention to ethical concerns to enable them make the right decisions on a daily basis. Thepreservation of a moral culture in banking is of serious interest to watchdogs, the banks,personnel and consumers alike. The challenge for many companies lies in balancing the prospect to make higherreturns with the necessity to sustain honorable principles in their daily transactions andprocesses. The application of ethics should stamp out exploitation for instance, from thecharging of higher interest rates than the base line for increased profits. As the global marketbecomes increasingly competitive, the use of stricter codes of ethics becomes even morecritical given the perceptions of customers who are becoming increasingly attentive andsensitive in theirdecision-making. On the internal structures of the business, business ethicsapplies to extensive areas including corporate governance, which encompasses adherence torules, the efficiency of boards, correct financial report auditing, executive remuneration aswell as the role of the chief executives in setting moral standards. Surname 3Business ethics strategies may be applied to an organization?s corporate cultureconcentrating on equitability of the application of human resource procedures, the adherence toorganizational values, labor and engagement practices, enabling the practical work and lifeequilibrium for employees, the conduct of managers and staff in aspects such as honesty. Inrelations with the external world, ethical principles may be employed in social relations such asensuring customer protection in relation to product quality, initiating and sustaining corporatesocial responsibility projects, respecting intellectual property and minimizing corrupt practicessuch as bribery.Internationally, there is an intensified emphasis on corporate ethics necessitatedby the substantial impacts of the downfall of corporations such as America?s Enron andKenya?s Triton, which were caused by unethical practices by the executives. The impact ofliquidated firms has been so momentous that several industrialized nations such as the UnitedStates of America have ratified laws aimed at curbing corrupt practices in organizations. TheAmerican legislation?s include the Sarbanes-Oxley Act was endorsed to advance thetransparency and accurateness of financial reports and business disclosures as well as toemphasize the significance of business ethical standards (Jiambalvo 17). In addition to blatant corrupt practices, as the global economy becomes increasinglycompetitive, consumers are becoming more perceptive and interested in knowing thebusinesses profit levels. The predicament, in this case, is whether a company should makesubstantial profits for its owners at the expense of customers who have to pay more as a resultof higher prices. For example, consumers boycotted some oil retailers in 2008 due to thesoaring international prices. Owing to the intensified significance of ethics in society and thesteep costs associated with ethical fiascos, it is vital that organizations include moral codes andpractices in their business strategy.1.1.2 Factors contributing to unethical behavior among the staff in the bankingsector According to Crane and Matten, ethical decision-making theories categorize the stimulion a person?s ethical conduct into two general groupings namely individual traits andcircumstantial factors (160). The first category consists of variables that are exclusivelyrelatedthe specific employee whereas the second category comprises of the variables that create andshape the circumstances in which the worker makes decisions. The circumstantial groupoffactors encompasses the variables that denote the situational pressures that weigh down on theindividual and either inspire or discourage principled decision-making. Thedisreputablebehaviour witnessed in organizations encompasses a complex blend of these distinctive andcontingent factors. Ageneral inference from a review of literature is most bankers may takepart in immoral activitiesdepending on the prevailing circumstances. Variables at the personal level include specificexigency factors such aspersona,attitudes, temperaments, ideals, level of education, and rationalethical development. Althoughsingular characteristics are key predictors of unscrupulous activities, they are also extremelyresistant to change. Individual characteristics, like personality and ethical attitudes, may beparticularly resistant to modification since they hinge on principles that are generallyestablishedprogressively and have developed due tosocial, familial, and spiritual affiliations.1.1.3 The Banking Industry in Kenya "