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An Overview of the Crisis: Causes, Consequences, and Solutions
Abstract
What caused the crisis? Initially many thought that it was due to incentive problems in the U.S. mortgage industry. However, after the large economic meltdown following Lehman Brothers' bankruptcy in September 2008, it seems that much more was going on. We argue that there was a bubble in real estate prices in the United States and a number of other countries. The main causes of the bubble were loose monetary policy, particularly by the United States Federal Reserve, and global imbalances. The combination of cheap credit together with the easy availability of funds contributed to create the bubble. Many other factors such as subprime mortgages, weak regulatory structures, and high leverage in the banking sector exacerbated the effects of the crisis. We consider possible reforms aimed at minimizing the occurrence of future crises in the governance structure of central banks, measures to reduce global imbalances, and changes in banking regulation.
... As long as the secondary market for mortgages was functioning normally, originating institutions were able to easily offload these loans to third parties. 7 However, when the secondary mortgage market came under pressure in the middle of 2007, banks with higher volumes of originate-to-distribute loans were stuck with large quantities of relatively inferior mortgage loans (Allen and Carletti 2010;Purnanandam 2011;Kim et al. 2018). 8 Moreover, the latter could not be offloaded to third parties when the MBS market froze in mid-2007. ...
... As long as the secondary market for mortgages was functioning normally before the onset of the crisis, originating institutions were able to easily offload these loans to third parties. However, when the secondary mortgage market came under pressure in the middle of 2007, banks with higher volumes of originateto-distribute loans were stuck with large quantities of relatively inferior mortgage loans (Allen and Carletti 2010;Purnanandam 2011;Kim et al. 2018) that could not be offloaded to third parties when the MBS market froze in mid-2007, consistent with the magnitude of recourse provided being risk-relevant. Based on this reasoning, the non-significant coefficients on the other loan types are likely due to their small magnitude relative to the US home mortgage market. ...
I investigate the impact of securitization on the risk-taking by bank holding companies (BHCs). For 2001 to 2017, I find a negative relationship between securitization and the risk appetite of BHCs. I find a negative relationship between securitization and the risk appetite of BHCs that is consistent with the recourse hypothesis of securitization. I also discover that the equilibrium in this relationship changes from the pre-crisis to the crisis period (crisis effect). This crisis effect hampers BHCs’ ability to engage in securitization that leads them to accumulate more risky assets on their books due to the deteriorated quality of their loan portfolios. This equilibrium then reverses after the crisis (post-crisis effect) due to policy makers’ response to the excessive risk-taking that manifested during the crisis. Moreover, I find that the securitization of residential mortgages not only boosts the recourse hypothesis but also triggers the crisis effect. My findings provide novel empirical insights into the different nexuses between the securitization and risk appetite of BHCs around the financial crisis.
... For instance, the Asian debt crisis of 1997 was caused by the collapse of the Thai baht in July 1997, which created panic that caused a region-wide financial crisis and economic recession in Asia (Radelet and Sachs, 1998). The 2008 global financial crisis, which translated to a recession, was caused by loose monetary policy which created a bubble, followed by subprime mortgages, weak regulatory structures, and high leverage in the banking sector (Allen and Carletti, 2010). The 2016 recession in Nigeria was caused by the fall in the price of crude oil, balance of payment deficit, adoption of a fixed-float exchange rate regime, an increase in the pump price of petrol, activities of pipeline vandals and infrastructure weaknesses. ...
... The discussion in this paper contributes to the financial crisis and pandemic literature (Allen and Carletti, 2010;Jagannathan et al, 2013;Mian and Sufi, 2010;Stiglitz, 2010;Ozili, 2020a). This paper contributes to the literature by showing that non-financial factors and/or non-economic factors can trigger both a financial and economic meltdown in unprecedented ways. ...
How did a health crisis translate to an economic crisis? Why did the spread of the coronavirus bring the global economy to its knees? The answer lies in two methods by which coronavirus stifled economic activities. First, the spread of the virus encouraged social distancing which led to the shutdown of financial markets, corporate offices, businesses and events. Second, the exponential rate at which the virus was spreading, and the heightened uncertainty about how bad the situation could get, led to flight to safety in consumption and investment among consumers, investors and international trade partners. We focus on the period from the start of 2020 through March when the coronavirus began spreading into other countries and markets. We draw on real-world observations in assessing the restrictive measures, monetary policy measures, fiscal policy measures and the public health measures that were adopted during the period. We empirically examine the impact of social distancing policies on economic activities and stock market indices. We also empirically the effect of COVID infection cases and COVID deaths on macroeconomic performance during the 2020 to 2021 period. The findings reveal that the increasing number of lockdown days, monetary policy decisions and international travel restrictions severely affected the level of economic activities and the closing, opening, lowest and highest stock price of major stock market indices. We also find that the rising number of COVID cases and rising death cases led to a significant increase in global inflation rate, global unemployment rate, and global energy commodity index.
... The recession due to coronavirus is different from the past. For example, in 1997, the fall down of the Thai currency in July 1997 generated fear that leads to region-wide monetary calamity and economic recession in Asia (Allen and Carletti, 2010). In 2008, a recession in terms of financial crisis occurred due to monetary policy followed by mortgages and their strong influence in the banking sector (Lu, 2020). ...
... As a result, people are bound to change their trading behavior in an online mode to sustain in this adverse situation. In this pandemic like Covid-19, the use of technology is the best option to keep the stability of small merchant enterprises (Allen and Carletti (2010). Most of the small-scale enterprises are not aware of the digital transformations in the business community. ...
The coronavirus (CoV) belongs to Severe Acute Respiratory Syndrome (SARS) species that lead to infection, causing illness, starting from common cold to some serious sickness. Finally, on 11 March 2020, the WHO Director-General Dr. Tedros Adhanom Ghebreyesus announced the outbreak as a pandemic. As the fear and ambiguity rose among companies and firms, the profit rate seemed to be lower due to the Covid-19 global impact, say nearly US6 trillion in wealth from 24th to 28 February 2020 of the stock market has been wiped out. There was a great decrease in value over the S&P index, which abolished over 5 trillion in the same week. However, the largest ten companies of S&P faced a loss of $1.4 trillion. The investors make an analytical prediction that firms' profits may drop in response to the impact of coronavirus. Our prime focus is on the importance of digital business practices and how different sectors have been affected in terms of economic loss during this pandemic outbreak in this paper.
... In this field, the interest for shock propagation and system's resilience is intimately related to the assessment of systemic risk. Since the United States subprime crisis, the European sovereign debt crisis in 2008, and the COVID-19 crisis, it became clear how fragile and interconnected the economic and financial systems are; see, among others, Ackermann (2008), Sanders (2008), Allen and Carletti (2010), Easley et al. (2010), andCaccioli et al. (2018) for a review on financial networks and systemic risk. The enormous consequences of a financial shock are crucial to analyzing how a system reacts in order to minimize economic, financial, and social damages. ...
Modeling how a shock propagates in a temporal network and how the system relaxes back to equilibrium is challenging but important in many applications, such as financial systemic risk. Most studies, so far, have focused on shocks hitting a link of the network, while often it is the node and its propensity to be connected that are affected by a shock. Using the configuration model—a specific exponential random graph model—as a starting point, we propose a vector autoregressive (VAR) framework to analytically compute the Impulse Response Function (IRF) of a network metric conditional to a shock on a node. Unlike the standard VAR, the model is a nonlinear function of the shock size and the IRF depends on the state of the network at the shock time. We propose a novel econometric estimation method that combines the maximum likelihood estimation and Kalman filter to estimate the dynamics of the latent parameters and compute the IRF, and we apply the proposed methodology to the dynamical network describing the electronic market of interbank deposit.
... It is discussed that the agency problem can be the cause of asset bubbles, and the consumer expectations for the future state of credit can also be the reasons for the deepening of the bubble [5]. Zhenliang and Shihe have identified the reasons for the bubble, such as speculation, expectations, irrationality, virtual capital, etc. [6]. ...
The purpose of this study is to conduct a comparative analysis and evaluate the effects of the real estate bubble crises in China following the epidemic and Japan in 1990. The data was analyzed using descriptive statistics and correlation. The data was collected through the World Bank website. The R-studio and Excel 2019 were used for data analysis. During the period 2010-2024 for China and 1980-2009 for Japan, it was found that China was in a stronger condition as compared with Japan. Further, it was identified that there were no bubble crises in China in the year 2010-2024 due to Covid-19 pandemic. This study provides a broader research idea to future researchers with the inclusion of other domains such as retail, banking, textile, and others, and to study in China and Japan.
... Moreover, the ability to provide more accurate and timely credit assessments through technologies like AI and big data analytics reduces the likelihood of bad loans and financial losses, which in turn strengthens the balance sheets of financial institutions. Stronger financial institutions are better equipped to support economic growth by providing the necessary liquidity and credit to fuel business activities (Allen & Carletti, 2010). This creates a virtuous cycle where improved credit risk management leads to greater economic stability, which further reinforces the capacity of the financial sector to support long-term growth. ...
This systematic review examines the transformative impact of technological advancements, such as big data analytics, artificial intelligence, machine learning, blockchain, and mobile platforms, on credit risk management in developing countries. It explores the dual nature of these innovations, highlighting their potential to enhance credit access, improve risk assessment accuracy, and promote financial inclusion, while addressing significant challenges, including data privacy concerns, algorithmic biases, regulatory hurdles, and infrastructure limitations. Through case studies from various regions, the review emphasises the need to tailor technological solutions to local contexts and balance innovation with effective risk management. The findings offer crucial insights for financial institutions, policymakers, and researchers, providing a foundation for future research on the long-term implications of these technologies on financial stability and economic growth in developing economies.
... The fact that Component 3 is largely attributed to quoter borrowers suggests that the flash-trading pattern during the financial crisis was conducted by banks that attempted to obtain liquidity as early as possible by posting quotes for loans. This may be regarded as evidence that some banks in fact faced a serious liquidity shortage at the time of the Lehman collapse [41,42]. Our multi-timescale NTF approach reveals not only how banks reacted to the fear of liquidity shortage (i.e., intra-day pattern), but also specific dates on which the fear was most evident (i.e., inter-day pattern). ...
Online financial markets can be represented as complex systems where trading dynamics can be captured and characterized at different resolutions and time scales. In this work, we develop a methodology based on non-negative tensor factorization (NTF) aimed at extracting and revealing the multi-timescale trading dynamics governing online financial systems. We demonstrate the advantage of our strategy first using synthetic data, and then on real-world data capturing all interbank transactions (over a million) occurred in an Italian online financial market (e-MID) between 2001 and 2015. Our results demonstrate how NTF can uncover hidden activity patterns that characterize groups of banks exhibiting different trading strategies (normal vs. early vs. flash trading, etc.). We further illustrate how our methodology can reveal "crisis modalities" in trading triggered by endogenous and exogenous system shocks: as an example, we reveal and characterize trading anomalies in the midst of the 2008 financial crisis.
... It is the process in which banks are of subjected to adverse scenarios to evaluate how it withstands financial shocks. The purpose of stress testing is to check the points of failure and the bank's capital adequacy and ensure the stability and soundness of the banking system [1]. ...
This research article explores the transformative impact of technological advancements on banking stress testing, a critical tool for assessing the resilience of financial institutions in adverse economic scenarios. The article delves into the historical background of stress testing, highlighting its evolution post-2008 financial crisis and the role of regulatory frameworks in shaping its methodologies. It further examines the integration of artificial intelligence (AI), big data, and real-time analytics in enhancing the accuracy and efficiency of stress tests. Practical applications, including real-time monitoring, advanced data analytics, and big data utilization, are discussed alongside strategies for banks to implement these technologies effectively. The article also addresses challenges such as data management, regulatory compliance, and talent acquisition. Finally, it explores future trends in stress testing, emphasizing the role of AI, machine learning, and RegTech in advancing risk management practices. The findings underscore the necessity for financial institutions to adopt technological innovations to strengthen their risk management frameworks and ensure financial stability.
... However, the Fed decided to increase interest rates with a gradual easing of economic conditions. As a result, the cost of borrowing for subprime mortgage borrowers rose sharply and the repaying burden for house buyers greatly increased [2]. At the same time, the price of US housing has reached a peak with little potential for further increase and the demand for housing became to decline. ...
This essay examines several pivotal moments in recent economic history in order to demonstrate the significant influence of monetary policy on global financial crises. Exploring the complex relationship between central banks, particularly the Federal Reserve, and the various crises that occurred, the study navigates through the consequences of monetary policy interventions. Beginning with an overview of the Federal Reserve's roles and mechanisms, the narrative unfolds into critical periods, including the stagflation of the 1970s, the subprime crisis in the 2000s, and the unprecedented challenges posed by the COVID-19 pandemic. Each crisis serves as a crucible for evaluating how well monetary policies can stabilize the economy in turbulent times. The examination centers on the application of diverse financial tools, encompassing interest rate modifications, open market operations, and non-traditional actions like asset acquisitions. Through meticulous examination, this paper seeks to explain how monetary policies, often evolving in response to economic paradigms, have shaped and reshaped the global financial landscape during times of crisis. By identifying the commonalities across these different crises, the study highlights the evolution of the Federal Reserve's strategies, underscoring its adaptability and resilience. These monetary interventions have broad implications for global financial stability, emphasizing the critical role of central banks in navigating the complexities of a rapidly evolving economic environment.
... Az Amerikai Egyesült Államokból kiindult és tovagyűrűzött 2008-as válság idején több nagy cég csődbe ment, vagy kényszerült arra, hogy egyesüljön versenytársaival. A nyugat-európai bankokat is súlyosan érintette e jelenség, annak hatása az egész világgazdaságban érezhető volt az amerikai gazdaság visszaesése révén (Allen & Carletti, 2010). A 2008-2009-es globális válság, főleg a növekedés túlhajszolásának következményeként értelmezhető (Rapkay, Illés & Stárics, 2013). ...
Az elmúlt három évben a világ működése annyit változott, mint a megelőző évtizedekben összesen. A piaci folyamatok, rendszerek megváltozását egyértelműen két meghatározó jelenség irányította: a COVID-19 okozta pandémiás válság és az orosz-ukrán konfliktus. E két világesemény alapvető normákat változtatott meg, amelyek hatására a szervezeteknek stratégiát kellett váltaniuk. Jogosan vetődik fel tehát a kérdés: mit terveznek valójában a vizsgált szervezetek? Hogyan látják a válságot? Mi befolyásolja a reakciókat? A tanulmány célja annak bemutatása, hogy a két válság kezdeti szakaszában, miként gondolkodtak a szervezetek, képesek voltak-e felmérni a várható hatásokat, megtudták-e tervezni a megfelelő intézkedéseket? A szerzők empirikus kutatásának eredményei alapján a mikrovállalkozások pesszimizmusukat hajlamosak az egész gazdaságra kivetíteni. Megállapították, hogy szolgáltatásaik kevésbé függenek az ellátási láncok sérülésmentességétől. Továbbá a háború által kiváltott különböző intézkedéseik összefüggésben voltak a korábbi külkapcsolataikkal.
... Allen, F. and Carletti, E. argue that, in the USA and some other countries, there was a bubble in the real estate prices, which was caused by a combination of cheap loans and the easy availability of funds, which led to the crisis. Factors such as subprime mortgages, weak regulatory structures, and high leverage in the banking sector exacerbated the crisis [28]. ...
This article analyzes the dynamics of the changes in indicators of socio-economic development under conditions of financial and economic crises and their negative consequences. The study proves that financial crises are associated with severe and prolonged downturns in economic activity. The socio-economic development of European countries in times of crises was analyzed. The cyclical nature of the onset of crises was confirmed via the study of the dynamics of socio-economic development indicators. The main emphasis was on the financial crisis of 2008–2009 and the COVID-19 crisis (2020–2021). The main indicators characterizing the crises were identified based on an analysis of literary sources. Their classification was developed according to the following groups: leading indicators, lagging indicators, and client leading indicators of expansion. Based on the correlation analysis, indicators that have a significant impact on socio-economic development and are predictors of crisis onset were identified. The authors suggest considering such leading indicators as increases in the private credit in the GDP, budget deficit, balance of payment deficit, and real interest rate. The major lagging indicators that have strong correlations with the GDP, such as the employment rate, general government debt, stock price volatility, and investment, were identified. Client leading indicators of expansion include unemployment, an increase in the number of new enterprises, an increase in purchasing power, etc. Some indicators, such as unemployment, can be both lagging indicators and client leading indicators of expansion. The negative consequences of the crisis are caused by the crisis itself as well as by the imbalances preceding the crisis. Therefore, the study of the predictors of crisis onset is relevant for timely decision making in order to prevent the negative consequences of the crisis. Based on the identified lagging indicators, the 2008–2009 crisis and the COVID-19 crisis were studied. To study the development processes of these crises, the authors analyzed by quarters the dynamics of the development of the following macroeconomic indicators: the GDP, employment, and investment levels. The similarities and discrepancies were identified in the natures of the emergences and courses of the 2008–2009 crisis and the COVID-19 crisis using the comparison method. The case study of the Eurozone and individual EU countries (Germany, France, Italy, and Spain) was used. Considering the similar courses of the crises, the forecast of the socio-economic development was made using the analyzed indicators during the COVID-19 crisis based on the 2008–2009 crisis data. The forecast approximation indicators were calculated, and a method for constructing further forecasts was selected. Based on retrospective data, the GDP forecast was developed via the use of the extrapolation method for 2023–2024. It is necessary to consider that while forecasting crises caused by unforeseen events and external influences, it is advisable to use qualitative analysis along with quantitative analysis. This article will be useful to researchers, political elites, experts, and financial analysts when developing programs for the socio-economic development of countries.
... "If a trustee does not accept an interest in property that would otherwise become trust property, the interest does not become trust property." (See: John H. Langbein) There are a number of reasons why a person might want to avoid an inheritance, particularly if the proceeds would only go to their creditors, or if it would drastically affect income tax liabilities (Allen & Carletti, 2013). At common law, a person disclaiming his interest would be treated as dead before the trust took effect. ...
The right of inheritance as the main branch of civil law is applicable today as a positive right guaranteed by the constitution, which right any subject of the law can have without differences of gender, ethnicity, or race. The right to inherit dates back to the time of unwritten laws, until today it is defined and protected by state laws. The topic related to the right to legally inherit the parent's inheritance or even the inheritance of someone who is not related by blood to us but made us an heir through the will is debatable and very current. Thus, subjects who are considered heirs must accept or not accept that inheritance after the death of the heir. Precisely for the acceptance or non-acceptance of the inheritance, we come across many cases in practice that end up in a contested procedure, but to clarify the renunciation of the inheritance, this paper has been prepared, which is divided into chapters in which the issue of renunciation is mainly elaborated inheritance, the progress and procedure of how we arrive at a decision which finds that a subject of law who was an heir renounces that inheritance, or does not voluntarily accept the inheritance left by the testator, whether by law or with legal work.
... Thus, it fulfills one of its main tasks smoothing out short-term economic fluctuations. At the same time, long-term growth does not have to be sacrificed because monetary policy usually cannot influence it [2,11,30]. Now, during the quarantine caused by the pandemic, the goals and capabilities of the Central Bank turn upside down: it has almost no influence on the short-term recession, and its main goal is to reduce the long-term damage to the economy [58,59,63]. ...
MANAGEMENT OF STATE FINANCIAL POLICY IN THE CONTEXT OF THE COVID 19 PANDEMIC
... Thus, it fulfills one of its main tasks smoothing out short-term economic fluctuations. At the same time, long-term growth does not have to be sacrificed because monetary policy usually cannot influence it [2,11,30]. Now, during the quarantine caused by the pandemic, the goals and capabilities of the Central Bank turn upside down: it has almost no influence on the short-term recession, and its main goal is to reduce the long-term damage to the economy [58,59,63]. ...
... Looking back, the global financial crisis of 2008 manifested as the global economy's Great Recession and the financial market's collapse. The reason is that loose monetary policy created the eventual bubble economy, with subprime mortgages, poorly regulated financial markets, and highly high bank leverage (Allen & Carletti, 2010). ...
In October 2022, former British Prime Minister Liz Truss announced her resignation in London, becoming the first prime minister with the shortest term in British history. Due to the current unstable economic and international situation, Lizzie Truss launched a "mini-budget" to trigger a violent reaction in the financial market. Severely tested the British market: the stock market plummeted, the bond market sold wildly, and the foreign exchange market collapsed. As a highly developed financial industry in the United Kingdom, the budget bill severely impacts its financial instrument pension plan. Mini-budget has been a cold winter for the British economy since Brexit in 2016, the new crown epidemic in 2019, and the Russian-Ukrainian war. This article examines the current British economic crisis and its consequences in the context of globalization, as well as analyzes and forecasts the future of the British economy based on Sunak's "Autumn Statement."
... "Available stable funding" is the segment of capital and liabilities which are most likely to remain reliable over the time horizon considered by the NSFR, which ranges to one year (BIS, 2014). § Mortgage-Backed Securities (MBS) economy and to an international investor (Allen & Carletti, 2010). Hence, banks played a vital role in triggering financial crises as they are deeply involved in the development of speculative products and excessive loan expansion mostly in the name of financial innovation (Andrieş, 2009). ...
Language acquisition is a complex and lengthy process that has many levels and is affected by different variables. A Sociolinguistic approach to Language Acquisition (LA) is one that studies the relationship between social contextual variables. This review paper intends to focus on one of the variables of language acquisition i.e. gender, which is an important factor in First and Second Language Acquisition. A brief overview of research studies and general trends in sociolinguistic gender over time is presented in order to explore relationship of gender and its role in first and second language acquisition. Keywords: Genderlect; Language Acquisition; Language Change/Maintenance; Bilingualism; Multilingualism; Language Variation.
... An economic crisis situation can also be viewed in terms of macroeconomic performance (Kirman, 2010). Allen, Carletti (2010) and Espinosa (2013) observed that there are three major sources of economic crisis, namely, macroeconomic mismanagement, maladjustments of financial policies and the overvaluation of securities such as shares, bonds and mortgages. The study also noted that any monetary policy mismanagement has the tendency to affect the macroeconomic indicators which eventually spirally affect the balancing of the economy (see also Vasco, Porporatto, 2011). ...
Research Background: The COVID-19 pandemic has the capacity of severely disrupting economic activities and triggering economic crisis, especially in Africa’s Oil Exporting Countries (AOECs). The African economy is likely to be the worst hit, especially the Africa Oil Exporting Countries (AOECs), as they have been majorly low income countries and considering the fall in oil prices, as oil revenue forms a major source of their revenue and government expenditure.
Purpose: This study explored the stakeholders’ opinions on reshaping and restructuring the economies of six African Oil Exporting Countries, with the aim of ascertaining the views of academics within the six AOECs, as regards the economic revival post COVID-19.
Research methodology: The study utilized the Participatory Development Strategy Approach (PDSA), employing the Cronbach Alpha Reliability test, Estimated Response Rate (ERR) and Explanatory Factor Analysis (EFA) to extract opinions from 1,260 stakeholders within the six AOECs.
Results: The results show that the stakeholders are of the opinion that the solutions to the rebuilding of AOECs are multi-faceted, suggesting a mixture of both government and private institutions in varying degrees. Some of the respondents favoured going back to agriculture and agribusiness to revamp their economies.
Novelty: The study utilized an uncommon methodology; the Participatory Development Strategy Approach (PDSA) to achieve its objective. The PDSA is meant to allow the affected stakeholders’ participation in the policy making process. The respondents were purely academics, as it is believed that academics are the sources of hope of solving myriads of human challenges such as hunger and economic crisis.
... From 20 Feb 2020 to 19 Mar 2020, the S&P 500 index fell by 28%, the FTSE 250 index fell by 41.3% and the Nikkei fell by 29% in the same time, large international banks recorded a fall in their share price (Ozili, 2019). In health Sector, China supplied about 60% of world's active pharmaceutical ingredients and during this shutdown severe supply issues are used as maximum pharma companies procure raw material from china that leads to shortage of drugs even for other diseases amid the crisis of COVID-19 (Allen, Carletti, 2010). ...
Abstract Within recent past, coronavirus has shaken the whole world. The world faced a new pandemic of novel coronavirus 2019 (SARS-CoV-2/ COVID-19).It has socioeconomically impacted world population a lot in terms of education, economy as well as physical and mental health. This novel coronavirus is notorious enough that put human health at a great risk. Currently, researchers all over the world aretrying hard to develop a new drug/vaccine for its treatment. In past decades, the world population has faced various viral infectious illness outbreaks. Influenza A, Ebola, Zika, SARS and MERS viruses had whacked public health and economy. Medical science technology achieved the landmark in developing coronavirus (SARS-CoV-2) vaccines that are approved currently for emergency use. Some of the recently approved vaccines are developed by Pfizer and Moderna, Johnson and Johnson, Gam-COVID-vac (Sputnik V), Bharat Biotech (covaxin) andOxford-AstraZeneca vaccines (covishield) (Badenet al., 2021). Here, a short review is drafted focusingon infection, immune system, pathogenesis, phylogenesis, mode of transmission and impact of coronavirus on health and economy and recent developments in treating COVID-19.
... (Haymans Manurung et al., 2020) Policymakers pay special attention to the banking sector of a country's economy. Banks have an important part in the financial system (Allen & Carletti, 2010) in (Sukarman, 2014) claimed that they have played a vital role in Indonesia since independence till now. (Rosenberg, 1982) in (Haryanto & Hanna, 2014) defines a bank as follows: "Bank is an organization, normally a corporation, chartered by the state or federal government, the principal functions of which are: (a) to receive demand and time deposits, honor instruments drawn against them and pay interest on them as permitted by law, (b) to securities, (c) to collect checks, drafts, notes, etc., (d) to issues drafts and cashier's checks, (e) to certify depositor's checks and (f) when authorized by a chartering government, to act in a fiduciary capacity. ...
The goal of this study is to look at how traditional banking has performed over the previous three years, specifically the impact of LDR(X1), CAR(X2), BOPO(X3), and NIM(X4) on ROA(Y), where stimulus measures have been used to keep the economy moving forward after the COVID-19 epidemic. Research methodology: Financial services authorities provide time-series analysis of traditional banking performance reports from 2018 to 2021, processing with Stata 16 and the multiple linear regression techniques. Results: The average ROA is 2.23 percent, with a standard deviation of 0.32 percent, and swings in all independent variables may explain 80 percent of changes in bank profitability. The LDR Loan to Deposits Ratio significantly impacts bank profitability in terms of return on assets. The greater the CAR ratio, the higher the bank's profitability concerning its ROA. Assume that the BOPO grows while all other variables remain constant. In such an instance, a rise of 0.013 NIM will occur, positively impacting bank profitability on ROA. Limitations: The limitation of this research is the post-pandemic banking relaxation data. Contribution: To policymakers, to see the impact of final actions, whether they were correct or not.
... South Korea is one of the most densely populated countries in the world 36 . A number of previous studies have pointed out a serious bubble in Korean land prices 37 . Compared to other countries, South Korea ranks third in the world in terms of land price 38 . ...
The aim of this study was to explore the operational potential of forest-photovoltaic by simulating solar tree installation. The forest-photovoltaic concept is to maintain carbon absorption activities in the lower part while acquiring solar energy by installing a photovoltaic structure on the upper part of forest land. This study was conducted by simulating solar tree installation using Google Earth satellite imagery in a mountainous area where an agrophotovoltaic system was already installed. When the simulation results were evaluated based on the installation guideline of the agrophotovoltaic system, it was confirmed that the operational potential of forest-photovoltaic was very high in almost all items of the guideline. Therefore, forest photovoltaic can be a possible alternative with priority in South Korea, where it is challenging to secure spatial competitiveness with a conventional flat fixed panel due to costly land prices. Although South Korea has been selected here as a case study, this discussion can be applied to other countries facing the disturbance risk to the forestry landscape due to solar power projects. To the best of the author's knowledge, this is the world's first study exploring the possibility of the forest-photovoltaic.
... Commercial banks are an essential and vital element of supporting the budget with big and timely income for the state due to their position in the financial system. This has a huge beneficial influence on the economy, but commercial banks remain at the top of the economy; so, this study to examine the impact of increasing tax rates on commercial bank profits and to know the negative impacts and identify the imbalance and try to fix and cure it (Allen & Carletti, 2010). ...
The purpose of the study is to determine the impact of increased taxes on the profits of Jordanian commercial banks and their financial sustainability as listed on the ASE, as well as the applicability and reliability of this method in determining the impact of increased taxes on the profits of Jordanian commercial banks and forecasting these risks in financial sustainability. Banks operating in Jordan, by proposing a Design model for calculating the rise in taxes on Jordanian commercial banks' income. To determine and forecast the impact of Jordanian commercial banks' tax increases on their financial sustainability as reported on the ASE.
... We take the bankruptcy filing of Lehman Brothers as the start of the global crisis, which signaled the possibility of bankruptcies of systematically important institutions (Carey et al., 2012;Cukierman, 2019;Ivashina and Scharfstein, 2010;Longstaff, 2010). Lehman's bankruptcy triggered huge losses in the financial sector, and as of early 2009, four investment banks failed because of their risky trading and excessive leverage (Allen and Carletti, 2010;Edey, 2009;Lewis, 2009). ...
We investigate how investor perceptions about the financial health of twenty-seven bank holding companies that controlled eighty percent of US banking assets at year-end 2006 changed during major events leading to the collapse of Lehman Brothers. We use the event study method to investigate whether and to what extent investors priced major events before the Lehman bankruptcy. Abnormal returns on the event days range from -9.25 to 4.80 percent. When the Federal Reserve Bank of New York is authorized to lend to Fannie Mae and Freddie Mac on 13 July 2008, sample bank holding companies average the lowest abnormal returns of -9.25. When the Federal Housing Agency places Fannie Mae and Freddie Mac under government conservatorship on 7 September 2008, abnormal returns average the highest at 4.80. The significant abnormal returns indicate that investors price the information released in the pre-crisis events.
... On this note, Allen and Carletti (2010) expressed that the cost mirrors the essentials of resources and can be confided in a proficient market. Nonetheless, assuming the value neglects to do as such, it might downplay or exaggerate the essentials of resources and become hard for banks to decide the worth of resources. ...
This study investigated capital adequacy and Deposit Money Bank's (DMB) Return on Asset (ROA) in Nigeria in which the effect of capital to asset ratio on bank's profit margin and the relationship between solvency and asset turnover was examined. The study population of the study comprised Nigeria deposit money banks listed on the floor of Nigeria Stock Exchange as at 2021. Sample of bank selected was Zenith Plc, Guaranty Trust Bank Plc (GTB), First Bank Nigeria Limited, Access Bank Plc, and United Bank for Africa Plc based on global ranking order and the fact that they are listed on Nigeria Stock Exchange. To determine the effect of capital adequacy on banks performance, Ordinary Least Square (OLS) regression model was employed the data collected within the period of 2006-2020. The findings of this study revealed coefficient of 0.080034 implies 1% change in capital to asset ratio would lead to 8% increase change in profit margin ratio and p-value of 0.042223 shows that CTA has statistical significant effect on profit margin of the selected banks within the period under study; coefficient of 0.04587 implies 1% change in solvency would lead to 4.58% change in asset turnover of the selected DMBs under the period studied, p-value of 0.0000611 shows that SOLV has statistical significant relationship with ATU of the selected banks within the period under study. The study recommends bank decision makers should give consideration for its solvency status and capital to asset ratio when investigating factors affecting bank’s actualization objective. In addition, DMBs in Nigeria should ensure that they maintain above minimum capital to asset ratio level in order to guarantee an efficient profit margin. Also, the ability of DMBs to meet their short and medium term financial obligations must be fortified in order to keep the performance at per. Keywords: Capital Adequacy, Return on Asset, Capital to Asset Ratio, Solvency, Profit Margin and Asset Turnover.
... There are also a plethora of studies on optimal public investment and health responses in pandemics (e.g., Adda (2016); Surico and Galeotti (2020); European Investment Bank (2021); Gourinchas, Kalemli-Özcan, Penciakova and Sander (2021)). An earlier (but still expanding) literature studies the repercussions of financial crises and policies preventing and dealing with them (e.g., Allen and Carletti (2010)). ...
Is there a connection between the 2007-2009 financial crisis and the COVID-19 pandemic? To answer this question we examine the relation between both macroeconomic and financial losses derived from the financial crisis and the health outcomes associated with the first wave of the pandemic. At the European level, countries more affected by the financial crisis had more deaths relative to coronavirus cases. We find an analogous significant relation across Spanish provinces and a transmission mechanism running from finance to health outcomes through cross-sectional differences in health facilities.
... According to different studies on the 2008 Global Financial Crisis, multiple factors caused the economic recession, such as loose monetary policy, cheap credit, and the easy availability of funds (Allen & Carletti, 2010;Islam & Verick, 2011). In addition, other factors such as subprime mortgages, weak regulatory structures, and high banking leverage, have exacerbated the impact of the crisis (Crotty, 2009). ...
The COVID-19 pandemic impacted global financial markets in an unprecedented manner. It is well-documented the negative effect in stock markets and increased volatility caused by the preventive measures adopted to combat the disease. This study aims to analyse how lockdowns and other restrictive measures affected the Portuguese index PSI-20 and its constituents. Specially, it investigates the effect over the three first waves of COVID-19 in Portugal, using the STOXX600 European index as benchmark, between March 2020 and April 2021. To test the hypothesis of whether lockdown measures affected stock returns, an event study methodology is employed to detect the presence of abnormal returns around each event date. Using a set of 21 events and a 5-day event window for each event, the abnormal returns are analysed with parametric and nonparametric tests. The test results show a negative market response over strict lockdown announcements, and a positive response over the withdrawals of such restrictions. The results suggest investors are likely to respond negatively to government’s impositions, especially in extraordinary situations. Nevertheless, the impact declines as the period of impositions extends. In addition, the companies most affected by the Portuguese government impositions are Ibersol and EDP Renováveis, while the least affected companies are Jerónimo Martins and Pharol.
Purpose
The purpose of this study is to analyze the relationship between lean manufacturing and corporate environmental performance. Scholarly literature has extensively addressed the relationship between those two areas but empirical papers present mixed and inconsistent results, calling for further analysis to establish a clearer understanding of the actual relationship and to identify the causes of conflicting findings across studies. Given the importance of sustainable practices in the current business landscape, this paper aims to provide a comprehensive overview of this relationship through a meta-analysis of previous research, with a focus on integrating quantitative findings to shed light on the potential impact of lean manufacturing on environmental performance and report its intensity with Pearson’s correlation coefficient.
Design/methodology/approach
This paper analyzes the data from 29 primary studies published between 2001 and 2022 that have empirically measured the relationship between lean manufacturing and corporate environmental performance and that have been identified in the Web of Science and SCOPUS databases through an exhaustive review of the literature. To integrate previous empirical results and evaluate the evidence for the lean manufacturing’s influence on environmental performance, a meta-analytic methodology was adopted through the Hedges–Olkin random effect approach, based on correlations.
Findings
Main findings support the notion that a significant, positive, rather moderated, relationship exists between lean manufacturing and environmental performance, with an overall correlation coefficient r ¯ = 0.25. The result seems robust, as several tests confirm that publication bias is unlikely. Overall, various lean practices are correlated to varying degrees with different measures of environmental performance. The environmental efficiency of external lean practices is higher than that observed for internal practices and quality management has a more pronounced effect than other internal lean practices. The 2008 global crisis did not change these relationships and the impact of lean manufacturing on environmental performance does not seem to be moderated by the degree of environmental awareness of the country where applied.
Research limitations/implications
The results conclude that a significant, positive relationship exists between lean manufacturing and environmental performance ( r ¯ = 0.25). This study tests certain factors that exhibit varying effect sizes and moderate the overall outcome, highlighting that the environmental efficiency of external lean practices is higher than that observed for internal practices. In addition, it suggests a more pronounced effect of quality management among other internal lean practices.
Practical implications
This study provides companies with an opportunity to align their operational strategies with environmental sustainability goals. Understanding that various lean practices exhibit diverse levels of correlation with multiple measures of environmental performance, decision-makers can prioritize their efforts and apply the lean practices that have a stronger effect on the desired environmental outcomes to improve their environmental impact. Conversely, managers are aware that certain lean practices have a week relationship with some environmental performance so they can avoid overestimating environmental benefits of lean manufacturing. Finally, results underscore the importance of organizational commitment to environmental sustainability.
Originality/value
It is, to the best of the authors’ knowledge, the first meta-analytic study to investigate the strength of the association between lean manufacturing and environmental performance and to test whether various lean practices are correlated to different measures of environmental performance. It fills this gap in the literature and therefore it represents a valuable contribution to the field. In addition, this paper explores certain factors that moderate the overall outcome.
Modelling how a shock propagates in a temporal network and how the system relaxes back to equilibrium is challenging but important in many applications, such as financial systemic risk. Most studies so far have focused on shocks hitting a link of the network, while often it is the node and its propensity to be connected that are affected by a shock. Using as starting point the configuration model, a specific Exponential Random Graph model, we propose a vector autoregressive (VAR) framework to analytically compute the Impulse Response Function (IRF) of a network metric conditional to a shock on a node. Unlike the standard VAR, the model is a nonlinear function of the shock size and the IRF depends on the state of the network at the shock time. We propose a novel econometric estimation method that combines the Maximum Likelihood Estimation and Kalman filter to estimate the dynamics of the latent parameters and compute the IRF, and we apply the proposed methodology to the dynamical network describing the electronic Market of Interbank Deposit (e-MID).
This paper investigates the relationship between monetary policy and bank risk-taking by introducing a model wherein banks expend a level of costly monitoring effort to select low-risk projects, thereby reducing the risk associated with the loans they grant. The impact of monetary policy on bank risk-taking is examined through both theoretical models and empirical analysis. The paper compares theoretical models with different assumptions, revealing an unambiguous negative effect without the assumption of limited liability for banks, and an ambiguous effect with the assumption of limited liability for banks, influenced by the equity ratio. The empirical model employs unique quarterly data comprising balance sheet information for top-listed banks in the U.S. banking system from 2000 to 2017. The findings indicate that low-interest rates contribute to an increase in bank risk-taking. Moreover, this effect is more pronounced after the financial crisis and weaker before the crisis. Additionally, the impact is evident for undercapitalized banks and more substantial for those financed with a higher proportion of equity.
Do financial crises affect long‐term public health? To answer this question, we examined the relationship between the 2007–2009 Global Financial Crisis (GFC) and the 2020–2022 COVID‐19 pandemic. Specifically, we examined the relationship between the financial losses derived from the GFC, and the health outcomes associated with the first wave of the pandemic. European countries that were more affected by the financial crisis had more deaths relative to coronavirus cases. An analogous relationship emerged across Spanish provinces and US states. Part of the transmission from finances to health outcomes appears to have occurred through cross‐sectional differences in health care facilities.
This chapter outlines the evolution of the European integration process, giving an overview of the most important regulatory steps related to the banking and financial system culminated in the creation of the Banking Union. A focus is also given to the international financial crisis; its origins and impacts from the perspective of the European banking system and to the role played by supervision aimed at ensuring the financial stability.KeywordsEuropean UnionInternational financial crisisEuropean banking systemBanking UnionFinancial integrationBanking supervisionCapital adequacy
Goal-The present paper addresses the research question as to how previous firm internationalisation leads to sustained commitment to further internationalisation under the conditions of the COVID-19 crisis. Research methodology-The study uses descriptive statistics based on a quantitative survey of 120 Polish exporters from manufacturing sectors. Score-The authors have found some evidence which partly contradicts previous expectations that firms with stronger previous involvement in internationalisation are more likely to sustain or increase their internationalisation commitment during the pandemic and in the post pandemic landscape. Originality / value / implications / recommendations-The authors have explored the boundary conditions under which internationalised firms sustain or extend their inter-nationalisation commitment under pandemic conditions.
The paper investigated and explored experts’ opinions regarding the post-pandemic control strategies within the South Asian perspective to make the Nepalese economy robust. The study was based on qualitative methods of analysis and the method of the study had been classified into two parts: Primary & Secondary. For secondary, data were collected through published reports, journal articles, the daily national newspaper, media, and Television coverage & personal observation, and experience. Whereas, for primary data, the study was carried out considering the way to control the post-pandemic effects on developing economies particularly in Nepal. The result of the study depicted that the post control of covid-19 effects on economic revival policies should prioritize sectorial concerns on the agriculture and industry sector of the economy over service sector and remittance. Therefore, for the pandemic recovery issue, the government and private sector’s role is to jointly solicit a model Public, Private, Partnership for the firm relief of economic stability. Thus, the paper concluded that there is an urgent need to prepare the post control strategy to minimize economic vulnerability. In this situation, Nepal needs strategies for good governance rather than a complex and mysterious plan.
Based on new public management, information processing theory and contingency theory, this study investigates the impact of the COVID-19 pandemic on budgeting in public hospitals, focusing on budget use. The research hypotheses were tested using a survey of 82 responses from hospital CFOs. The results show that the organisations that were most affected by the pandemic increased their use of budgets for planning, resource allocation and control, compared to those that were less affected. This study also highlights the moderating role of cost accounting information quality in the relationship between crises and budget use. We find that public hospitals that have been most affected by the pandemic and have simultaneously better cost accounting information have increased their use of budgets for planning, resource allocation and cost control more than those whose costing system does not provide superior cost data.
Over the last few hundred years, best practice in some fields of human action—e.g. the treatment of heart disease, the transportation of persons, goods, and messages, and destruction of landscapes, structures, and lives—has become dramatically more effective. At the same time, best practice in other fields, e.g. the amelioration of poverty or the teaching of reading, writing, or math, has improved more slowly, if at all. As Richard Nelson and colleagues have argued, it seems that practice and technology (“know-how”) can only improve rapidly under rather special conditions: that, at any given point in time, some fields are more “progressible” than others. Drawing on Nelson's work and studies in the history, sociology, and economics of technology and innovation, I offer a conceptual framework articulating several characteristics of practice in a field that may facilitate rapid progress. These characteristics, while not fixed, tend to remain fairly stable for long periods of time. I argue that know-how can improve more quickly 1) when “vicarious trial” of variations in practice is feasible and useful; 2) when practice is formal and standardized; 3) when practice is in significant part performed by artifacts rather than by humans; 4) when outcomes of variations in practice may be rapidly evaluated; 5) when valued performance dimensions are consistently agreed upon; 6) when contexts and objects of practice may be treated as, or have been made, consistent for the purposes of intervention; and 7) when labor is finely divided. Thus, analysis of these features may inform judgments about the plausibility of rapid advance within a field, absent disruptive change in methods or problem formulation. The argument may also shed light on which varieties of innovative effort may and may not foreseeably contribute to improving practice in a given field.
A 2019 év végén megjelenő, majd 2020-ban pandémiává vált koronavírus jelentős hatást gyakorolt nemcsak az egészségügyre, hanem a világgazdaságra is. A koronavírus-járvány okozta válság kihívás elé állította a gazdaság szereplőit. A kereslet drasztikus visszaesése és a kényszerű karantén intézkedések hatására a válság a munka világában is egyből jelentkezett, ez pedig emberek millióinak életére és megélhetésére volt azonnali következményekkel. A járvány által legsúlyosabban érintett iparágak (pl. turizmus, vendéglátás) területén tömeges elbocsátásokkal, kényszerű fizetetlen szabadságolással kellett szembenézniük a munkavállalóknak. Mint általában minden válságnak, így a koronavírus okozta válságnak is a leginkább érintett szegmensei a kis- és középvállalkozások. Jelen tanulmány a koronavírusnak a magyar kis- és középvállalkozások működésére gyakorolt hatásait mutatja be. A kutatási kérdőívet 174 válaszadó töltötte ki. Az eredmények kiértékelése során megállapítható volt, hogy a koronavírus jelentős hatással volt a hazai kis- és középvállalkozások napi működésére, valamint azok foglalkoztatottsági jellemzőinek alakulására. A koronavírus következtében pénzügyi nehézségekkel, és a szolgáltatások/termékek iránti kereslet csökkenésével küzdenek leginkább a hazai kis- és középvállalkozások, így a kormányzati támogatások és intézkedések létfontosságúak számukra. E tanulmány segít megérteni az elmúlt időszak eseményeit, áttekintést ad a magyar kis- és középvállalkozások koronavírussal kapcsolatos attitűdjeiről és válságkezelési lépéseikről.
Purpose
Testing a total of five hypotheses, the paper contributes to overall comparison of the two regimes, as it scrutinises whether these improvements have helped regulate this sector. Although it appears that, for the first time, International Financial Reporting Standards (IFRS) had a more timely effect than US Generally Accepted Accounting Principles (GAAP), multiple parameters must be taken into consideration. The banking system has additional rules that may affect financial statements, such as the Basel Accord which sets many policies closely related to the IFRS, such as deferred tax credits. In this way, this paper aim to enrich the results of these decisions, and illuminate aspects of amendments to IFRS and US GAAP in light of the crisis. Focussing on the financial sector, the author sought to critically evaluate their reactions, and to question some of their fundamental rules in practice. This is vital for accounting researchers and analysts, allowing for the first time to compare IFRS performance between Europe and the US, and make better investment evaluations.
Design/methodology/approach
The study sought to detect whether IFRS and US GAAP protected firms from abnormal sales arising from the outbreak of the crisis, whether the reclassification option under IFRS was an answer to the crisis, and whether IFRS and US GAAP succeeded in regulating shadow banking through their amendments. Therefore, it processes five hypotheses. In order to detect the effects of the crisis on accounting regimes, the analysis focused only on companies from the financial sector composed of the banking industry, insurance companies and shadow banking. The author included firms from Australia, Germany, Greece, the UK and the US, and collected information on 679 financial institutions for the period 2009–2013. The author settled on these time frames because the author aimed to capture IFRS performance surrounding the crisis effects in 2008 and the amendments that followed. In this way, the author applied quantitative methods using only numerical data over a given period.
Findings
The results suggest that the reclassification option was successful, helping firms to perform better amid the crisis, indicating that the manipulation of the crisis was appropriate. It seems therefore that US GAAP should have activated this option for US firms. However, the US may not have hurried to act because its banking sector seemed to recover more quickly than in Australia and Europe. Either way, both regimes need to consider speculative market cases that might have appeared during the crisis, as the author have detected cases of abnormal returns. Finally, concerning regulation of the shadow banking sector, the results seem to be encouraging only with regard to the latest improvements and only for all countries examined.
Originality/value
The project contributes to debate on the reactions of both IFRS and US GAAP during and after the economic crisis. For this, it addresses several questions to investigate the performance of the financial sector under both regimes, identifying possible additional effects and considerations. More specifically, it answers if the fair value orientation actually contributes to the financial crisis through contagion effects, while it addresses additional questions. Have these two global accounting regimes succeeded in overcoming the consequences of the crisis? Have amendments and the introduction of new standards to IFRS and US GAAP achieved regulation of shadow banking? Which of the two has performed better? As aforementioned, the analysis focused only on companies from the financial sector composed of the banking industry, insurance companies and shadow banking firms from Australia, Germany, Greece, the UK and the US, for the period 2009–2013.
This study constructed regular vine copula models to investigate risk contagion across China's regional housing markets, which has recently garnered substantial attention in academic and practical domains. We adopted the Chinese monthly price indices of new commercial housing sales from 2006 to 2019. We found that the housing markets within the three primary Chinese urban agglomerations have tail dependencies, thereby implying the tendency for these markets to experience extreme market situations together. Therefore, these housing markets share risk contagion. Furthermore, China's four first-tier cities—Shanghai, Beijing, Guangzhou, and Shenzhen—drive regional market risk contagion. Market risk alternately diffuses across the adjacent major housing markets and expands from these first-tier cities to their surrounding areas. These findings suggest that risk contagion should be carefully considered in developing regulation policies and making investment decisions associated with China's real estate markets.
This paper reviews an emerging experimental literature that uses laboratory methods to both identify causes of the 2007–2009 financial crisis, and to assess the effectiveness of policies implemented in response. Papers reviewed include experiments conducted to evaluate central bank and Treasury responses to the crisis, experiments that study the consequences of interconnectedness between financial firms on financial system stability, and experiments conducted to evaluate policies intended to more effectively regulate specific types of financial institutions. Laboratory methods are ideally suited to investigating the consequences of untested policies in new environmental circumstances – just the situation provoked by the crisis. The continually evolving structure of the financial system suggests an expanded future role for laboratory methods in this area.
The paper focused on COVID-19 pandemic in Nigeria and the likely emerging economic and social impact. The paper adopted a methodological literature review approach. It drew from real time data observations, those documented in the country as well as on the global space to and established facts gathered from journals, internet and other secondary sources. From the data analysis, the study found that the health policy measures undertaken to contain the pandemic from spreading such as the lockdown measure and social distancing protocols brought about some manifest economic and social impacts. It was discovered that there was unexpected social-economic uncertainty which caused changes in consumers' preferences in the allocation of income to consumption expenditure and savings. Aggregate demand components of the country were affected which caused demand for essential goods and services to rise while the non-essential to drop sharply. On the supply side, the economy dwindled as global, national and local supply chain of goods and services were drastically disrupted reduced resulting into short supply causing restocking to be impeded resulting into scarcity and general rise in prices. The social impact are categorized into pro and cons. The pros include reduction in traffic grid lock in the cities; environmental pollution and health related diseases; increased spend time with family member and neighbours among working class and business owners; and increased attention to hobbies. The cons are disruption to existing social relations among several segments of society, widening disparity in health among persons, increased social tensions, stress, domestic violence, suicide cases, gender inequity, crime rate, poverty level
Prior research indicates a significant relation between life events and the demand for life insurance. This paper is the first study to relate the demand for life insurance to household portfolio holdings in a dynamic framework. The study examines changes in life insurance demand as a function of changes in household portfolio holdings and life events using panel data during the recent financial crisis. The results indicate that household portfolio holdings are more significant than life events in explaining life insurance ownership decisions, and suggest a complementary rather than a substitution relationship between the ownership of life insurance and the holdings of equity and bonds during recessions. The results also indicate that households with more financial assets allocated to bonds drop significantly more term life insurance coverage. Further implications for practitioners are discussed.
The research aims to examine the vulnerability and resilience of road transport enterprises in Poland to a crisis caused by the COVID-19 pandemic. In theory, we refer to the Schum-peterian perspective of creative destruction. In the empirical analysis, survey data on 500 transport companies randomly selected from the database were used. We estimated partial proportional odds models to show the factors responsible for the enterprises' vulnerability and resilience to unforeseen shock. The perspective refers to the total sample size and the division into two subgroups: micro and small and medium enterprises. To justify the results, we calculated a set of statistical indicators and tests. These models enable separating enterprises according to the vulnerability level. Transport enterprises occurred significantly vulnerable to the COVID-19 crisis, particularly the demand shock. The only factor that influenced resilience was the decrease in fuel prices, which allowed a cost reduction. The crisis showed that government aid was helpful in the short run, particularly for micro and small enterprises. The medium-sized enterprises were more resilient than micro and small ones. We formulated several recommendations to help transport enterprises to adjust in the medium term.
COVID-19 has disturbed the China's economy as well as world economy. The idea of the sickness and its financial effect is exceptionally questionable that makes defining a successful macroeconomic strategy reaction hard for policymakers. How did a financial downturn transform into a wellbeing crisis? What is the reason behind the spread of the coronavirus push the worldwide economy on its knee? Answer lays in two techniques by which problem can be solved. To begin with, spread of disease enabled social isolating which provoked the shutdown of cash related markets, corporate work environments, associations and events. Another, the exponential rate at which the contamination was spreading, and the expanded defenselessness about how horrendous the condition could get, incited excursion to prosperity in use and theory among clients, money related experts and general trade assistants. Researcher found that the more number of lockdown days, money related strategy choices and global traveling restriction internally as well externally that influenced the degree of monetary exercises and the end, opening, least and most noteworthy stock cost of significant securities exchange records. Conversely, the forced limitation on inner development and higher monetary strategy spending positively affected the level of financial exercises, despite the fact that the expanding number of pandemic cases did not much affected the monetary exercises.
Throughout history, rich and poor countries alike have been lending, borrowing, crashing--and recovering--their way through an extraordinary range of financial crises. Each time, the experts have chimed, "this time is different"--claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters. With this breakthrough study, leading economists Carmen Reinhart and Kenneth Rogoff definitively prove them wrong. Covering sixty-six countries across five continents, This Time Is Different presents a comprehensive look at the varieties of financial crises, and guides us through eight astonishing centuries of government defaults, banking panics, and inflationary spikes--from medieval currency debasements to today's subprime catastrophe. Carmen Reinhart and Kenneth Rogoff, leading economists whose work has been influential in the policy debate concerning the current financial crisis, provocatively argue that financial combustions are universal rites of passage for emerging and established market nations. The authors draw important lessons from history to show us how much--or how little--we have learned. Using clear, sharp analysis and comprehensive data, Reinhart and Rogoff document that financial fallouts occur in clusters and strike with surprisingly consistent frequency, duration, and ferocity. They examine the patterns of currency crashes, high and hyperinflation, and government defaults on international and domestic debts--as well as the cycles in housing and equity prices, capital flows, unemployment, and government revenues around these crises. While countries do weather their financial storms, Reinhart and Rogoff prove that short memories make it all too easy for crises to recur. An important book that will affect policy discussions for a long time to come, This Time Is Different exposes centuries of financial missteps.
The first hints of trouble in the mortgage market surfaced in mid-2005, and conditions subsequently began to deteriorate rapidly. Mortgage defaults and delinquencies are particularly concentrated among borrowers whose mortgages are classified as "subprime" or "near-prime." The main factors underlying the rise in mortgage defaults appear to be declines in house prices and deteriorated underwriting standards, in particular an increase in loan-to-value ratios and in the share of mortgages with little or no documentation of income. Contrary to popular perception, the growth in unconventional mortgages products, such as those with prepayment penalties, interest-only periods, and teaser interest rates, does not appear to be a significant factor in defaults through mid-2008 because borrowers who had problems with these products could refinance into different mortgages. However, as markets realized the extent of the poor underwriting, underwriting standards tightened and borrowers began to face difficulties refinancing; this dynamic suggests that these unconventional products could pose problems going forward.
We formulate a simple theoretical model of a banking industry that we use to identify and construct theory-based measures of systemic bank shocks (SBS). These measures differ from “banking crisis” (BC) indicators employed in many empirical studies, which are constructed using primarily information on government actions undertaken in response to bank distress. Using both country-level and firm-level samples, we show that SBS indicators consistently predict BC indicators, indicating that BC indicators actually measure lagged policy responses to systemic bank shocks. We then re-examine the impact of macroeconomic factors, bank market structure, deposit insurance, and external shocks on the probability of systemic bank shocks (SBS) and on “banking crisis” (BC) indicators. We find that the impact of these variables on the likelihood of a policy response to banking distress (as represented by BC indicators) is frequently quite different from that on the likelihood of a systemic bank shock (SBS). We argue that disentangling the effects of systemic bank shocks and policy responses is crucial in understanding the roots of banking crises. We believe that many findings of a large empirical literature need to be re-assessed.
ABSTRACT Financial institutions have been at the forefront of the debate on the controversial shift in international standards from historical cost accounting to mark-to-market accounting. We show that the trade-offs at stake in this debate are far from one-sided. While the historical cost regime leads to some inefficiencies, marking-to-market may lead to other types of inefficiencies by injecting artificial risk that degrades the information value of prices, and induces suboptimal real decisions. We construct a framework that can weigh the pros and cons. We find that the damage done by marking-to-market is greatest when claims are (1) long-lived, (2) illiquid, and (3) senior. These are precisely the attributes of the key balance sheet items of banks and insurance companies. Our results therefore shed light on why banks and insurance companies have been the most vocal opponents of the shift to marking-to-market. Copyright University of Chicago on behalf of the Institute of Professional Accounting, 2008.
In both the industrialized and developing worlds, a distinctive feature of the last two decades has been prolonged buildups and sharp collapses in asset markets such as stock, housing, and exchange markets. The volatility has sparked intense debate in academic and policy circles over the appropriate monetary and regulatory response to dramatic market shifts. This book examines asset price bubbles to further our understanding of the causes and implications of financial instability, focusing on the potential of central banks and regulatory agencies to prevent it. The book grew out of a conference jointly sponsored by the Federal Reserve Bank of Chicago and the World Bank Group in April 2002.
In a financial system in which balance sheets are continuously marked to market, asset price changes appear immediately as changes in net worth, and eliciting responses from financial intermediaries who adjust the size of their balance sheets. We document evidence that marked-to-market leverage is strongly procyclical. Such behavior has aggregate consequences. Changes in dealer repos - the primary margin of adjustment for the aggregate balance sheets of intermediaries - forecast changes in financial market risk as measured by the innovations in the Chicago Board Options Exchange Volatility Index VIX index. Aggregate liquidity can be seen as the rate of change of the aggregate balance sheet of the financial intermediaries.
What caused the financial crisis? What prolonged it? Why did it worsen so dramatically more than a year after it began? Rarely in economics is there a single answer to such questions, but the empirical research presented in this chapter strongly suggests that specific government actions and interventions should be first on the list of answers to all three. The period from the start of the crisis through October 2008, when market conditions deteriorated precipitously and rapidly, is the focus. Copyright
This report discusses the implications of the recent financial market turmoil for central banks. We start by characterizing the disruptions in the financial markets and compare these dislocations to previous periods of financial stress. We confirm the conventional view that the current problems in financial markets are concentrated in institutions that have exposure to mortgage securities. We use several methods to estimate the ultimate losses on these securities. Our best (very uncertain) guess is that the losses will total about $500 billion, with about half being borne by leveraged U.S. financial institutions. We then highlight the role of leverage and mark-to-market accounting in propagating this shock. This perspective implies an estimate of the eventual contraction in balance sheets of these institutions, which will include a substantial reduction in credit to businesses and households. We close by exploring the feedback from credit availability to the broader economy and provide new evidence that contractions in financial institutions' balance sheets cause a reduction in real GDP growth.
The banking sector has long been exempted from the application of competition policy because of the potential trade-off between competition and stability. In this paper we review the academic literature on this issue, we describe the design of competition policy in Europe and its application in the EU in the last two decades. The analysis highlights that competition policy is now taken seriously in the financial sector. The European Commission has by now investigated mergers, cartels, abuses, and state aids in this sector, and it has taken some landmark decisions. Still, much remains to be done in terms of academic research and of the role that the European Commission can play in fostering competition in banking in Europe.
In recent financial crises a bubble, in which asset prices rise, is followed by a collapse and widespread default. Bubbles are caused by agency relationships in the banking sector. Investors use money borrowed from banks to invest in risky assets, which are relatively attractive because investors can avoid losses in low payoff states by defaulting on the loan. This risk shifting leads investors to bid up the asset prices. Risk can originate in both the real and financial sectors. Financial fragility occurs when positive credit expansion is insufficient to prevent a crisis.
What causes a financial crisis? Can financial crises be anticipated or even avoided? What can be done to lessen their impact? Should governments and international institutions intervene? Or should financial crises be left to run their course? In the aftermath of the Asian financial crisis, many blamed international institutions, corruption, governments, and flawed macro and microeconomic policies not only for causing the crisis but also unnecessarily lengthening and deepening it. Based on ten years of research, the authors develop a theoretical approach to analyzing financial crises. Beginning with a review of the history of financial crises and providing readers with the basic economic tools needed to understand the literature, the authors construct a series of increasingly sophisticated models. Throughout, the authors guide the reader through the existing theoretical and empirical literature while also building on their own theoretical approach. The text presents the modern theory of intermediation, introduces asset markets and the causes of asset price volatility, and discusses the interaction of banks and markets. The book also deals with more specialized topics, including optimal financial regulation, bubbles, and financial contagion.
An originate-to-distribute (OTD) model of lending, where the originator of a loan sells it to various third parties, was a popular method of mortgage lending before the onset of the subprime mortgage crisis. We show that banks with high involvement in the OTD market during the pre-crisis period originated excessively poor-quality mortgages. This result is not explained away by differences in observable borrower quality, geographical location of the property, or the cost of capital of high- and low-OTD banks. Instead, our evidence supports the view that the originating banks did not expend resources in screening their borrowers. The effect of OTD lending on poor mortgage quality is stronger for capital-constrained banks. Overall, we provide evidence that lack of screening incentives coupled with leverage-induced risk-taking behavior significantly contributed to the current subprime mortgage crisis. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.
There has been a spirited debate about the merits of mark-to-market accounting for financial institutions for some time now. Many argue that market prices provide the best estimate of value available and should always be used. However, others suggest that in times of crisis market prices are not a good reflection of value and their use can lead to serious distortions. This article explains the circumstances where market prices do reflect future earning power and those where market imperfections imply that they do not. We suggest that in financial crisis situations where liquidity is scarce and prices are low as a result, market prices should be supplemented with both model-based and historic cost valuations. The rest of the time and in particular when asset prices are low because expectations of future cash flows have fallen, mark-to-market accounting should instead be used.
Financial crises have occurred for many centuries. They are often preceded by a credit boom and a rise in real estate and other asset prices, as in the current crisis. They are also often associated with severe disruption in the real economy. This paper surveys the theoretical and empirical literature on crises. The first explanation of banking crises is that they are a panic. The second is that they are part of the business cycle. Modeling crises as a global game allows the two to be unified. With all the liquidity problems in interbank markets that have occurred during the current crisis, there is a growing literature on this topic. Perhaps the most serious market failure associated with crises is contagion, and there are many papers on this important topic. The relationship between asset price bubbles, particularly in real estate, and crises is discussed at length.
The financial market turmoil in 2007 and 2008 has led to the most severe financial crisis since the Great Depression and threatens to have large repercussions on the real economy. The bursting of the housing bubble forced banks to write down several hundred billion dollars in bad loans caused by mortgage delinquencies. At the same time, the stock market capitalization of the major banks declined by more than twice as much. While the overall mortgage losses are large on an absolute scale, they are still relatively modest compared to the $8 trillion of U.S. stock market wealth lost between October 2007, when the stock market reached an all-time high, and October 2008. This paper attempts to explain the economic mechanisms that caused losses in the mortgage market to amplify into such large dislocations and turmoil in the financial markets, and describes common economic threads that explain the plethora of market declines, liquidity dry-ups, defaults, and bailouts that occurred after the crisis broke in summer 2007.
This article examines the differences in the concept of the corporation and their possible implications for corporate performance, between Japan on the one hand and the United States and Europe (Germany, UK and France) on the other. The Japanese concept is used as the standard against which the other models are compared. The concept of the corporation is defined here as the answer to the question: ‘In whose interest should the firm be managed?’1 This is the foundation on which corporate governance and the monitoring system for the CEO is built. The analysis is focused on large publicly-held corporations with widely diffused ownership.
In a financial system in which balance sheets are continuously marked to market, asset price changes appear immediately as changes in net worth, and eliciting responses from financial intermediaries who adjust the size of their balance sheets. We document evidence that marked-to-market leverage is strongly procyclical. Such behavior has aggregate consequences. Changes in dealer repos – the primary margin of adjustment for the aggregate balance sheets of intermediaries – forecast changes in financial market risk as measured by the innovations in the Chicago Board Options Exchange Volatility Index VIX index. Aggregate liquidity can be seen as the rate of change of the aggregate balance sheet of the financial intermediaries.
Some have argued that recent increases in credit risk transfer are desirable because they improve the diversification of risk. Others have suggested that they may be undesirable if they increase the risk of financial crises. Using a model with banking and insurance sectors, we show that credit risk transfer can be beneficial when banks face uniform demand for liquidity. However, when they face idiosyncratic liquidity risk and hedge this risk in an interbank market, credit risk transfer can be detrimental to welfare. It can lead to contagion between the two sectors and increase the risk of crises.
We develop a simple model of the interbank market where banks trade a long term, safe asset. When there is a lack of opportunities for banks to hedge idiosyncratic and aggregate liquidity shocks, the interbank market is characterized by excessive price volatility. In such a situation, a central bank can implement the constrained efficient allocation by using open market operations to fix the short term interest rate. It can be constrained efficient for banks to hoard liquidity and stop trading with each other if there is sufficient uncertainty about aggregate liquidity demand compared to idiosyncratic liquidity demand.
We introduce a new hybrid approach to joint estimation of Value at Risk (VaR) and Expected Shortfall (ES) for high quantiles of return distributions. We investigate the relative performance of VaR and ES models using daily returns for sixteen stock market indices (eight from developed and eight from emerging markets) prior to and during the 2008 financial crisis. In addition to widely used VaR and ES models, we also study the behavior of conditional and unconditional extreme value (EV) models to generate 99 percent confidence level estimates as well as developing a new loss function that relates tail losses to ES forecasts. Backtesting results show that only our proposed new hybrid and Extreme Value (EV)-based VaR models provide adequate protection in both developed and emerging markets, but that the hybrid approach does this at a significantly lower cost in capital reserves. In ES estimation the hybrid model yields the smallest error statistics surpassing even the EV models, especially in the developed markets.
It is widely acknowledged that the recent generation of DSGE models failed to incorporate many of the liquidity and financial accelerator mechanisms revealed in the global financial crisis that began in 2007. This paper complements the papers presented at the 2009 BIS annual conference focused on the role of banks and other financial institutions by analysing the role of household decisions and their interplay with credit conditions and asset prices in the light of empirical evidence. In DSGE models without financial frictions, asset prices are merely a proxy for income growth expectations and play no separate role. On UK aggregate consumption evidence, section 2 of the paper shows this is strongly contradicted by the data, for all possible discount rates and both for a perfect foresight and an empirical rational expectations approach to measuring income expectations. However, an Ando-Modigliani consumption function generalised to include a role for liquidity, uncertainty, time varying credit conditions, wealth and housing collateral effects, as well as income expectations, explains the data well. Section 3 reports new evidence on the striking rejection on aggregate data of the consumption Euler equation central to all DSGE models. Section 4 shows that UK micro evidence is consistent with the generalised Ando-Modigliani model. Section 5 discusses the limitations of recent DSGE models with financial frictions and housing. Section 6 discusses some business cycle implications of amplification mechanisms and non-linearities operating via households and residential construction. It reconsiders econometric methodology appropriate for designing better evidence-based central bank policy models.
This paper is an empirical investigation of the role of government actions and interventions in the financial crisis that flared up in August 2007. It integrates and summarizes several ongoing empirical research projects with the aim of learning from past policy. The evidence is presented in a series of charts which are backed up by statistical analysis in these research projects.
This paper summarizes and explains the main events of the liquidity and credit crunch in 2007-08. Starting with the trends leading up to the crisis, I explain how these events unfolded and how four different amplification mechanisms magnified losses in the mortgage market into large dislocations and turmoil in financial markets.
A financial system is fragile if a small shock has a large effect. Sunspot equilibria, where the endogenous variables depend on extrinsic uncertainty, provide an extreme illustration. However, fundamental equilibria, where outcomes depend only on intrinsic uncertainty, can also be fragile. We study the relationship between sunspot equilibria and fundamental equilibria in a model of financial crises. The amount of liquidity is endogenously chosen and determines asset prices. The model has multiple equilibria, but only some of these are the limit of fundamental equilibria when the fundamental uncertainty becomes vanishingly small. We show that under certain conditions the only robust equilibria are those in which extrinsic uncertainty gives rise to asset price volatility and Þnancial crises.
The crisis problem is one of the dominant macroeconomic features of our age. Its prominence suggests questions like the following: Are crises growing more frequent? Are they becoming more disruptive? Are economies taking longer to recover? These are fundamentally historical questions, which can be answered only by comparing the present with the past. To this end, this paper develops and analyses a data base spanning 120 years of financial history. We find that crisis frequency since 1973 has been double that of the Bretton Woods and classical gold standard periods and is rivalled only by the crisis-ridden 1920s and 1930s. History thus confirms that there is something different and disturbing about our age. However, there is little evidence that crises have grown longer or output losses have become larger. Crises may have grown more frequent, in other words, but they have not obviously grown more severe. Our explanation for the growing frequency and chronic costs of crises focuses on the combination of capital mobility and the financial safety net, including the implicit insurance against exchange risk provided by an ex ante credible policy of pegging the exchange rate, which encourages banks and corporations to accumulate excessive foreign currency exposures. We also provide policy recommendations for restoring stability and growth.
— Michael Bordo, Barry Eichengreen, Daniela Klingebiel and Maria Soledad Martinez-Peria
Understanding Financial Crises Clarendon Lecture Series in FranceOpening Remarks, 'Maintaining Stability in a Changing Financial System
- F Allen
- D Gale
Allen, F., and D. Gale (2007), Understanding Financial Crises. Clarendon Lecture Series in France. Oxford: Oxford University Press. Bernanke, B. (2008), 'Opening Remarks, 'Maintaining Stability in a Changing Financial System', Jackson Hole Symposium 2008, Federal Reserve Bank of Kansas City, pp. 1–12.
Invest Japan. Chicago, IL: Probus. International Review of Finance r 2010 The Authors Journal compilation r International Review of Finance Ltd
- W Ziemba
- S Schwartz
Ziemba, W., and S. Schwartz 1992, Invest Japan. Chicago, IL: Probus. International Review of Finance r 2010 The Authors Journal compilation r International Review of Finance Ltd. 2010
Mark-to-Market Accounting and Liquidity Pricing
- Allen
Maintaining Stability in a Changing Financial System
- B Bernanke
Banking Crises and Crisis Dating: Theory and Evidence’ Working Paper University of Minnesota
- J G Boyd
- De Nicolo Ande
- Loukoianova
Opening Remarks ‘Maintaining Stability in a Changing Financial System
- B Bernanke