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The Banker and the Campus Uproar

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The Banker And The Campus Uproar
Student’s Name
Institutional Affiliation

Discussion Questions * Why would a bank consider making a mortgage loan or home equity loan to a homeowner who could not make the scheduled loan payments--wouldn’t this end up hurting the bank?
Answer:
Before advancing loans to the potential customers the banks consider certain things with the help of documents and tools. The financial position to the best of knowledge is assessed. But there is always a risk of default at the debtor’s end. Therefore, the bank bears the risk. For the minimization of this risk, the banks secure themselves with the help of securities and collaterals. In term of house loans, the house which is for which loan is advanced is taken as the collateral. A charge of bank is created over that asset by the bank. In case of default in payments by the debtor, the bank acquires that house and recovers the money of loan and interest by selling the house in auction. Any residual value after paying the bank liabilities is returned to the debtor. Therefore, throughout the loan tenure, bank is secure and reduces its risk with the help of collaterals. * After considering Cristina’s likely motives, incentives and behavior, do you believe she had conflicts of interest that were so serious she would knowingly recommend loans that were harmful to her clients’ interests? Explain your answer.
Answer:
The motives of Cristina were own wealth maximization. She was offered benefits on selling the assigned amount of loans to the Hispanic customers. Otherwise, her own job was at stake. Those workers which did not perform well and were not able to meet their targets were laid off by the bank. Therefore, there was a conflict of interest. She had to sell the loans to customers by exaggerating their importance and value for the customers. Therefore, she showed only bright side of getting loans at low interest to the customers. These customers were not made aware about the hectic repayment schedules. These loans were only in the benefit of Cristina and for the well-being of the bank with minimum weightage given to the customer’s perspective. * Cristina likely understands the risks and benefits of home equity loans much better than most of her clients. Do you think that finance professionals such as Cristina have an ethical obligation to only recommend financial products that they believe will benefit their clients? Explain your answer.
Answer:
Cristina was working as loan advisor with the MCB. As a part of her job, it was her duty to bring business to the bank. She was acting as a sales agent well. At certain times, she was aware of the financial conditions and associated risks to the clients but as a part of her sales related job she did not disclose these risks to the customers and showed only the bright side of the picture to close the sale. The financial institutions and officers like Cristina should communicate the service features to the customers efficiently. There should be no barriers and manipulation in this process so that the customer gets a fair view and decision should be at the customers’ discretion. Such officers should not only consider the benefit of the customer but they should also consider the interest of the bank as well. The only solution to such situations is efficient flow of information between the bank and customer. Nothing should be kept hidden. * Whatever are Cristina’s motives, do you think she is guilty of breaking predatory lending laws? Explain your answer.
Answer:
Forcing a customer in taking any kind of loan by manipulating the information about the lending services is called predatory lending. According to some studies, in US more than 70 percent people fall a prey to predatory lending practices. To safeguard the interest of debtors, certain laws and legislations are present to check such practices. Despite of these legislations, it is not possible to completely eradicate these practices. In this case Cristina is guilty of predatory lending as she has manipulated customers for own interest of selling loans to the customers without any concern of their repayment schedules. She only had a motive of meeting her own targets and securing her own job. * Suppose you were in Cristina’s situation, with a family to support and a high pressure loan advisor job. Considering all available options, and the likely consequences of those options, would you recommend home equity loans that were harmful to your clients, if it increased your current annual income? Explain your answer.
Answer:
If I was in place of Cristina with the said situation and circumstances, I would not recommend loans which were harmful for the customers for own good. I will communicate the service features to the customers with each and every possible aspect and then leave the decision with the customer. * Suppose you were in Dr. Moore’s situation, with all of his incentives and options. Would you consent to the students’ demand and prohibit Money Center Bank representatives from recruiting at future Finance Club meetings? Explain your answer.
Answer:
If I was in Dr. Moore’s place his situation and available options, I would not consider the students demand only. I will not prohibit the entry of Cristina as she is a representative of MCB. These banks also recruit students on campus. The institution has a responsibility of giving market exposure to students as well as ensuring their placement at respectable jobs in the market. If I consider the ethical limitations backed by some research of a bunch of students, then it will not be possible for any representative of any institution to cross these hurdles and come to the Finance Club meetings and on campus recruitments. Therefore the student placements will be effected * Conflicts of interest (between a professional and a client) and ethical challenges exist in all types of professions, including medical, legal, business, and academic. Can you identify any conflicts of interest that exist for other finance professions?
Answer:
There are many instances where conflict of interest arises between the finance professionals and the customers. For example, in investment banking, the bankers may exploit the available information to the management for their own good and indulge in insider trading. Similarly, professionals working with insurance companies may not disclose the clause of floating interest rates and assure their customers that interest rates will fall. Practically interest rates could rise instead of falling. This is also conflict of interest. * Studies on group dynamics and organizational culture have demonstrated that an individual is more likely to engage in unethical behavior when that individual is in a group rather than alone. Further, a member of a group is more likely to engage in unethical behavior when their group supports the unethical behavior (S. Robbins and T. Judge, Organizational Behavior, 14th ed. Upper Saddle River, NJ: Prentice Hall 2011). Is there any evidence in the case which suggests that the group and/or organization may have influenced Cristina's behavior to be less ethical than it might have been if she had not been a member of her work group or organization?
Answer:
It is evident from the case that the MCB in which Cristina is working is responsible for her activities of predatory lending. The individuals continuously feel the fear of losing job in case he/she is not able to meet the assigned targets. Therefore for their own financial well-being and securing their jobs they indulge in every possible activity to achieve their sales targets by manipulating the information. If Cristina did not faced this fear there were chances that she would not have been involved in such predatory lending activities

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