WEEKLY ADVISER: Some Ethical Puzzlers From the Banking Life

William Watson, president of Cross Keys Bank in St. Joseph, La., is a frequent supplier of useful ideas for this column. His communications have included telling how he won a farmer's $150,000 account away from a statewide banking organization because he was willing to make funds transfers by phone. (The larger competitor had made the farmer come to the bank.)

Mr. Watson's latest letter recounts some hypothetical situations that raise ethical questions of the sort community bankers often face.

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Case 1

1. Harvey Hullabaloo works for ABC Bank, a midsize commercial bank in the Midwest. In 20 years of success in his work as a loan officer, he has established many good relationships with the bank's borrowers.

Sam Sisco has been dealing with the bank for some 15 years. He is highly successful, his credentials above reproach. Other banks have been trying for years to steal him from Harvey's bank, but he has remained loyal because of the service and his friendship with Harvey.

Harvey is the godfather of one of Sam's children. Harvey and Sam are both graduates of Ohio State, and they and their families go together to football games several times year.

This year, as they are checking out of a hotel, Harvey says:

"Sam, I've been thinking. We've been paying our own way to these events for years. And it's stupid.

"Let me pick up the hotel bill this year. I can charge it to my expense account; your $1,000,000 line of business surely justifies it.

"Next year, you can catch mine - and charge it to your business, if you like."

Multiple choice:

A. There is no ethical problem here.

B. Full disclosure and approval by Harvey's supervisor would erase any ethical problem.

C. This is a violation of ethical behavior.

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Case 2

2. Harvey attends a lending conference in Las Vegas. His plane fare is $320, and his hotel bill is $230.

The meetings are during the day; Harvey spends some time gambling at the hotel at night. He bets about $25 to $50 per hand of blackjack or roll of the dice.

According to casino policy, players who play as much and wager as much as Harvey are offered certain "comps." Harvey qualified for air fare and his room. He was given $320 in cash for his air fare; the room bill he was asked to pay came to $9.79, for telephone calls and other incidentals.

Harvey decided that, as he was gambling his own money to earn the comp treatment, the bank should not receive the benefits from it. He expensed the air fare and the $230 hotel bill to his expense account.

Multiple choice:

A. There is no ethical problem here.

B. Harvey should have expensed the air fare or the hotel bill, but not both.

C. Harvey should have not have expensed anything on which he was comped.

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Case 3

Harvey is dining with his family at a fine restaurant. When he tries to pay his $123 tab, the waiter says it was taken care of by a man sitting at the rear of the restaurant.

Harvey recognizes the man as Charlie Conman, one of his borrowers. Charlie's account is a shambles, with a number of bad loans about to be charged off.

Harvey, not wanting to make a scene, simply waves a not-very- enthusiastic thank you to Charlie.

Multiple choice:

A. There is no violation of ethics here.

B. Harvey was O.K. in accepting the gift, but he should have reported it the next day to his superior and seen that a memo was placed in the record to show the circumstances.

C. Harvey should have insisted on paying his bill.

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I'd be interested in your comments.

Mr. Nadler is a contributing editor of the American Banker and professor of finance at Rutgers University Graduate School of Management.