Should the top executives of the major banks that received bail-out Term Paper

Should the top executives of the major banks that received bail-out money be allowed to receive large bonuses - Term Paper Example The act of providing additional capital to banks and other organizations when they face the danger of bankruptcy is called bailout. During the last few years, most of the major banks in America were provided with bailout money so that they would be saved from the danger of insolvency and thereby liquidation. Since banking sector is the growth engine of a nation’s economy, government must give great care to its maintenance. In addition, the regulators can also play a vital role in preventing the disastrous effects of bankruptcy by the effective application of various financial tools. This paper has been drafted with intent to explore the ethical range of paying large bonuses to top executives of major banks that received bailout money. Bailout and its impacts on economic sector The bank bailout has a far reaching impact on a nation’s economy as it is spent out of extra budgeted money. The general public of the nation largely suffers from the bank bailout since it leads t o the downturn of economy. Similarly, many investors and shareholders may lose money on their investment due to the economic collapse of banks; and therefore they hesitate to go with further dealings. The foreign investors and companies may also lose their interest in a weaker banking sector and it would adversely affect the financial viability of the nation as a whole. In the opinion of McKay (2010), the taxpayer money has been employed to meet the cash reserve needs of the banks. The money from the treasury is used to carry out fund operations, if the banks have not repaid the money (pp. 50-51). Therefore, the Federal Reserve is forced to pay more money to the banking industry at the time of depression and it breaks balanced financial structure of the various policy based operations. McKay also indicates that the banks generally utilize the cash deposits from the customers to ‘purchase mortgage-backed securities, collateralized debt, and loan obligations. In most cases, they are valued worthless and it would badly impinge on the rate of return on bank’s transactions. Likewise, it is reported that some major American banks had inflated their profit in order to attract more investors and creditors. As a result, many creditors have not been still reimbursed for their claims. â€Å"When banks fail, getting credit and loans becomes more difficult. This makes the process more difficult for the people looking to buy cars, homes, and property and perhaps for students trying to obtain educational loans† (McKay,2010, p.53). Similarly, the businessmen would not get adequate assistance from the banks and it would impede the industrial growth of the country. The failure of banks and subsequent bailout leads to incredible job losses within the country. Moreover, when the banks are compelled to withstand with the bailout money, they cannot implement new policies and programs. In short, the process of bailout will certainly cause the economic diminution of the whole country. Top executives of banks and their bonus payment Usually, banks pay high salaries to their top executives with intent to retain them in the organization since they are the skippers who lead the day to day activities. I am of the opinion that top executives of the banks that received bailout money should not be allowed to collect large bonuses. As the top executives are the decision takers of the organization regarding various matters, they are also responsible for the