Question

Put yourself in the shoes of a person running a small, local S&L in the late 1980s. If you refuse to take on risk, something that you have always tried to do, depositors will move their funds to riskier investments, which offer higher interest rates. Eventually your S&L could be bankrupt. Your depositors will be protected by federal insurance, but you, your employees, family, and community will suffer. Alternatively, you could do what many of your peers are doing—make riskier investments. If you make good choices, your S&L may survive, and you could become very rich in the process. If you do not, it will go bankrupt sooner. What is the ethical thing for you to do? Why?

Answer 1

There are two conflicting requirements namely to ensure that my S&L does not become bankcrupt and at the same time by being ethical by not making riskier investments so that the depositor's money is protected.

It is very important to be ethical even at the cost of the business being shut. It is quite likely that my peers who are making riskier investments have their investments going bad sooner than later. With my reputation intact and enhanced, I will attract more depositors in the future.

I will also enducate my clients that the interest rates I am offering is because the I give loan to individuals with high credit ratings to ensure that their deposits are safe. If they leave me and go to my peers, they may get higher interests in their deposits. However, the other S&Ls may become bankcrupt. This could result in you as depositors losing your money as there is a limit on savings amount beyond which the Federal Guarantee will not hold.