ABSTRACT
The global 2007/08 global financial crisis pushed the boundaries of unethical practices with housing loans given to sub-prime investors. A major factor that led to the crisis included inflated mortgage loans advanced by financial institutions to high-risk buyers. As American homeowners could not pay back their loans, banks sold out those homes to individuals who were not qualified by commercial bank credit standards. This led to the sub-prime crisis, the effect of which continues to be felt across the globe even after a decade. The failure of financial institutions to conduct a thorough credit check on individuals’ creditworthiness undermines the institution’s ethos. This study explores the role of moral capital in times of economic and financial crisis. It is believed that the reckless behaviour of financial institutions contributed to the crisis. This recklessness tends to dampen business confidence and ultimately retard economic growth. Essentially, investors entrust financial institutions with their money to get a high return. Safeguarding depositors’ confidence is important for the success of the financial service industry, and this depends on maintaining moral standards. High moral standards are critical to maintaining the public’s trust in financial markets, ultimately influencing their investment. Based on the foregoing, one would easily argue for more stringent regulations. However, because more regulation may hinder the efficient functioning of the financial system, moral capital can help limit such reckless behaviour by bankers. It provides the bankers and regulatory agents with a sense of duty towards customers in the sense of preserving the reputation of being responsible, fair, and honest bankers and regulators.
