Financial accounting in the banking industry a review of the empirical literature

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Financial accounting in the banking industry a review of the empirical literature

Bank run When a bank suffers a sudden rush of withdrawals by depositors, this is called a bank run. Since banks lend out most of the cash they receive in deposits see fractional-reserve bankingit is difficult for them to quickly pay back all deposits if these are suddenly demanded, so a run renders the bank insolvent, causing customers to lose their deposits, to the extent that they are not covered by deposit insurance.

An event in which bank runs are widespread is called a systemic banking crisis or banking panic. In general, a currency crisis can be defined as a situation when the participants in an exchange market come to recognize that a pegged exchange rate is about to fail, causing speculation against the peg that hastens the failure and forces a devaluation.

Stock market crash and Bubble economics A speculative bubble exists in the event of large, sustained overpricing of some class of assets. If there is a bubble, there is also a risk of a crash in asset prices: However, it is difficult to predict whether an asset's price actually equals its fundamental value, so it is hard to detect bubbles reliably.

Some economists insist that bubbles never or almost never occur. The Panic of and Long Depression followed. Well-known examples of bubbles or purported bubbles and crashes in stock prices and other asset prices include the 17th century Dutch tulip maniathe 18th century South Sea Bubblethe Wall Street Crash ofthe Japanese property bubble of the s, the crash of the dot-com bubble in —, and the now-deflating United States housing bubble.

Currency crisis and Sovereign default When a country that maintains a fixed exchange rate is suddenly forced to devalue its currency due to accruing an unsustainable current account deficit, this is called a currency crisis or balance of payments crisis.

When a country fails to pay back its sovereign debtthis is called a sovereign default. While devaluation and default could both be voluntary decisions of the government, they are often perceived to be the involuntary results of a change in investor sentiment that leads to a sudden stop in capital inflows or a sudden increase in capital flight.

Several currencies that formed part of the European Exchange Rate Mechanism suffered crises in —93 and were forced to devalue or withdraw from the mechanism. Another round of currency crises took place in Asia in — Many Latin American countries defaulted on their debt in the early s. The Russian financial crisis resulted in a devaluation of the ruble and default on Russian government bonds.

Wider economic crisis[ edit ] Main articles: Recession and Depression economics Negative GDP growth lasting two or more quarters is called a recession. An especially prolonged or severe recession may be called a depression, while a long period of slow but not necessarily negative growth is sometimes called economic stagnation.

Some economists argue that many recessions have been caused in large part by financial crises. One important example is the Great Depressionwhich was preceded in many countries by bank runs and stock market crashes.

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The subprime mortgage crisis and the bursting of other real estate bubbles around the world also led to recession in the U. Some economists argue that financial crises are caused by recessions instead of the other way around, and that even where a financial crisis is the initial shock that sets off a recession, other factors may be more important in prolonging the recession.

Financial accounting in the banking industry a review of the empirical literature

In particular, Milton Friedman and Anna Schwartz argued that the initial economic decline associated with the crash of and the bank panics of the s would not have turned into a prolonged depression if it had not been reinforced by monetary policy mistakes on the part of the Federal Reserve, [12] a position supported by Ben Bernanke.

Strategic complementarity and Self-fulfilling prophecy It is often observed that successful investment requires each investor in a financial market to guess what other investors will do.

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George Soros has called this need to guess the intentions of others ' reflexivity '. For example, someone who thinks other investors want to buy lots of Japanese yen may expect the yen to rise in value, and therefore has an incentive to buy yen too.

Likewise, a depositor in IndyMac Bank who expects other depositors to withdraw their funds may expect the bank to fail, and therefore has an incentive to withdraw too.

Economists call an incentive to mimic the strategies of others strategic complementarity. Leverage finance Leverage, which means borrowing to finance investments, is frequently cited as a contributor to financial crises. But when it borrows in order to invest more, it can potentially earn more from its investment, but it can also lose more than all it has.

Therefore, leverage magnifies the potential returns from investment, but also creates a risk of bankruptcy.literature has established the development of financial institutions as a determinant of economic growth, research on the correlation of the diffusion of Islamic banking with economic growth is limited.

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Financial Ratios for the Commercial Banking Industry: Do They Measure What You Think? Brian Stanko LITERATURE REVIEW Lacking in this literature is empirical evidence regarding the financial characteristics of commercial bank ratios in general.

Financial accounting in the banking industry a review of the empirical literature

We survey research on banks׳ financial accounting. After providing a brief background of the theoretical models and accounting and regulatory institutions underlying the bank accounting literature, we review three streams of empirical research.

Specifically we review studies associating bank. Financial accounting in the banking industry: A review of the empirical literature$ Anne Beattya,n, Scott Liaob,1 a Fisher College of Business, The Ohio State University, Fisher Hall, Neil Avenue, Columbus, OH , USA b Rotman School of Management, University of Toronto, St.

George Street, Toronto, ON M5S 3E6, . International Journal of Business and Social Science Vol.

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4 No. 7; July Forensic Accounting and Financial Fraud in Nigeria: An Empirical Approach. A Literature Review on Digital Transformation in the Financial Service Industry Timo Cziesla.

University of Göttingen, Germany Literature Review, Financial Service Industry, Industry Transformation, Digital A Literature Review on the Digital Transformation in the Financial Service Industry Gharavi et al.

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