The Great Depression revealed the dangers of supplanting real industry and enterprise with a “casino economy” in which the high interest rates impose an intolerable and unsustainable debt burden on private income. Hence regulations were put in place to curb over speculation and increasing interest rates. Glass Steagall Act was one of them. However regulations became a target of Reagan administration reformers. For example, the Garn-St. Germain Act allowed S&L associations to take demand deposits and make commercial and industrial loans.
Main concerns surrounding the application of fair value accounting to banks and other financial institutions are identifies in this section. Does fair value accounting create difficulties in risk and capital management? In managing risk and capital, the introduction of “fair value accounting” in US GAAP & in IAS 39 was creating difficulties observed by many bankers before the present crisis. Resultant to the shift to fair value accounting, a four way treatment of financial assets was resolute on the following difficulties. Which are held to maturity, loans and receivables, available for sale & trading assets.
1. Internal control of a corporation must be improved to avoid the similar crisis to occur in the future. Failure to strengthen the internal control system will lead to collapse of the corporation. This is because a weak internal control will accumulate problem from the business operation and thus increase operation risk as a whole. This is a very common problem in the banking industry.
However, the estimation of collectability of loans could be subjective and requires management’s judgment. As cited by CIMB Bank Berhad (2015), management makes judgment on the future and other critical factors in terms of the estimation of the amount and time of cash flows in allowance for impairment of loans, advances and financing despite guided by the relevant BNM guidelines and accounting standards. From an auditing perspective, the problem with management judgment is the high likelihood of fraud to occur because the accounts are susceptible to manipulation by management. Management of the bank could manipulate the accounts by understating the amount of allowances for impairment losses on loans and overstating the profit. Furthermore, uncollectible loans are written off from the related allowance for loan impairment (CIMB Bank Berhad, 2015).
This shoe that there is accuracy with vital ethical assessments by those offering oversight, the investor may be the part of ethical misconduct. To some point, this is what occur in year 2008 global crises. This show significant danger on economy of the world and produced in widespread nonprofit, government, business and personal financial loss. The industry of finance is required to create ethics an enterprise-broad concern and portion of the performance assessments. The protection that CDS, subprime loans and model of the computer were not non ethical procedures ignored the truth that the decision makers mishandled the financial instruments to destroy others.
Hello, Change slide Pierre and I will be arguing in favour of the statement: Banking and international capital movement should be strictly regulated. I’ll be mainly focusing on banking regulation. In specific I’ll discuss the uniqueness of the banking sector, the representation hypothesis, social externalities, moral hazard and the failure of deregulation. Change slide We seek to regulate the banking sector, more strictly than we do almost any other industry because it is simultaneously vital to the global economy and susceptible to systemic failure arising from the interconnectedness of its individual banks. Banks allow borrowers and investors to form links through transactions from around the world, facilitating the transfer of money from
al. 2007). The loss of public confidence in banks will also have a negative impact on the national effort towards mobilization of savings and the propagation of the banking habit among people (Caprio and Vittas, 2007). Economic growth would certainly be retarded if savings were not mobilized and channeled to sectors that require funds for productive use (Neave, 2002). Adequate reform and regulations, therefore, ensure efficient and stable financial system, which is vital for the successful implementation of the monetary and economic policies of a country.
However worlds recent thrust into financial disaster has raised this significance to dangerous level. This has particularly put direct effect upon monetary sector such as banks. The fact that organizations cannot manage their external surroundings in current period of recession has put direct stress on management of interior environment of such organizations. Compensation management deals with the ability to efficiently compensate the employees to work, & create a competitive benefit through highly motivated HR. Compensation is the foundation stone of an effective capacity of management strategy.
Because banking itself always in a state of asymmetric information, which should require evaluation work Solutions to prevent and limit credit risks at banks as Information must be screened carefully, accurately and avoid omission projects high efficiency and avoid getting the project ineffective or inefficient. The bank has not provided complete and accurate. In many cases, banks did not fully grasp the information on a credit relationship with customers and other credit institutions should be able verdict wrong lender. Information system can help facilitate the lending process but it also holds big risks to both lenders and borrowers since it contains all important information and data of the banks and their
To summarize, Inefficient capital stock market is caused by the distorted accounting information. In another words, management should ensure that the book-keeping records and financial accounting should align with International Accounting Standards (IAS) or International Financial Reporting Standards (IFRS). Management should also aware on the consequences of accounts manipulations. It should be such a way that recognition of revenue or income should be based on the transferred of risk and reward to the seller instead of cash receipt basis. Expenses should be based on the accrual basis instead of cash