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The paper's aim is to research and discuss the issue of the lack of transparency in financial reporting and how companies take advantage of accounting rules in ways that inhibit transparency.

A literature review was carried out to see what had been written and discussed. Various legal cases were studied as well as Securities and Exchange Commission (SEC) and Financial Accounting Standards Board (FASB) studies of the impact of off‐balance‐sheet arrangements allowed by the FASB and SEC.

There are many ways that companies accomplish off‐balance‐sheet financing by taking advantage of rules‐based accounting. If there is not a rule to prevent an entity from handling a particular transaction a certain way, then it is difficult for the auditor to stop it from happening.

The paper is of descriptive nature. There are many policy implications from the results of the paper for all regulatory agencies. The economic substance of transactions needs to be communicated.

Financial managers and financial consultants need to refocus the structuring of financial transactions so that they comply with generally accepted accounting principles and that the economic substance of financial transactions is communicated. More accountability and ethical awareness needs to be instilled in the individuals who deceitfully structure financial transactions. Regulatory bodies need to ensure more transparency by closing loopholes and better enforcement of accounting standards. Boards of directors, especially the audit committees, need to be sure that a company is communicating the true economic reality of the financial transactions and financial position of the business entity. Off‐balance‐sheet financing is one of the most significant ways, among others, that the user of financial statements can be misled. It is time for regulatory bodies to eliminate overly rules‐based standards, clearly state the economic objective of each standard, and require firms to disclose the economic motivations for the accounting practices they adopt.

The value of the paper is that it studies the problems of the lack of transparency in financial reporting. It then suggests that if what is currently being done, (i.e. rules‐based accounting), is not working, then a new approach, principles‐based accounting needs to be implemented by the regulatory agencies. This paper provides an overview of the lack of financial statement transparency.

The purpose of this paper is to investigate how much liquidity banks create and how liquidity creation changed over time in the MENA countries and to examine the soundness of banks in these countries based on the CAME rating system, in addition to investigating the relationship between CAME ratios and liquidity creation of these banks.

The study regresses the CAME ratios together with other control variables to model liquidity creation. The robustness of the results is evaluated by using a different measure of liquidity creation and by excluding the observations of the Islamic banks.

The results show that the CAME rating system, as an indicator of bank soundness, is negatively related to bank liquidity creation. Specifically, capital adequacy, management efficiency and earning ability ratios affect the on-balance sheet components of liquidity creation, while asset quality ratio affects its off-balance sheet component.

The paper offers insights to regulators and banks managers in terms of better understanding of the negative relationship between CAME rating system and bank liquidity creation.

This paper sheds more light on the relationship between bank soundness and liquidity creation by using the ratios of the CAMEL rating system as an indicator of bank strength and soundness.

This study analyzes the impact of changes in bank capital on liquidity creation. More specifically, it tests “financial fragility – crowding out” and “risk absorption” hypotheses for Indian banks.

It uses the data of 136 listed and unlisted banks, ranging from the year 2000 to 2014. The analysis is based on panel data techniques.

There is negative relationship between narrow measure of bank liquidity creation and capital. Therefore, in the case of India, “financial fragility – crowding out” hypothesis holds for “cat nonfat” measure of liquidity creation. However, there is no relationship between “cat fat” measure of liquidity creation and capital, except for listed banks, and the banks in the pre-crisis period. In these two cases, “risk absorption” hypothesis holds. Furthermore, none of the hypotheses holds in the post-crisis period.

The higher capital requirements posed by the Basel III will result in lower on-balance-sheet liquidity creation, which may result in lower profitability for the banks. However, increase in capital does not affect off-balance-sheet liquidity creation, rather enhances it in case of listed banks. So, the managers may use risky off-balance-sheet liquidity creation to improve profitability. Therefore, the regulators must be vigilant to the off-balance-sheet activities of banks to avoid banking turmoil.

To the best of authors’ knowledge, this is the first study to explore which hypothesis regarding the relationship between bank capital and liquidity creation holds for Indian banks. It contributes to the existing literature by providing the empirical evidence that “financial fragility – crowding out” hypothesis holds for on-balance-sheet liquidity creation and “risk absorption” hypothesis holds for listed banks. It also points to the new direction that neither of the hypotheses holds in the post-crisis period in India.

Islamic banks have significantly different balance sheets from their conventional counterparts, leading to different implications in relation to liquidity creation compared to conventional banks. This work, first, investigates the liquidity creation of conventional and Islamic banks in Middle Eastern and North African (MENA) countries between 2011 and 2016. It then tests the relationship between liquidity creation and performance of these banks.

It uses the data of 491 commercial banks across 18 MENA countries between 2011 and 2016. The analysis is based on panel data techniques.

The banks created US$18.596 trillion of liquidity, about 28.4% of total assets. Conventional banks created more liquidity compared with Islamic banks. Nevertheless, Islamic banks created more liquidity per asset compared with conventional banks. The regression analysis revealed a significant and negative correlation between liquidity creation and performance of the banks using return on average equity (ROAE) measure. However, no significant relationship is observed between liquidity creation and return on average assets (ROAA) of MENA banks. Moreover, there is no difference between Islamic and conventional banks in the relation between liquidity creation and bank performance.

The data are limited to the period 2011-2016; the period of this study was selected based on yearly data availability from the data source. Accounting measures were used to study the effect of liquidity creation on bank profitability, and the market-based measures were excluded, as there is no uniform sources in these countries that can be used to collect market-based data.

Bank managers must reach a trade-off between the advantages and disadvantages of liquidity creation, as well as consider the negative relationship between liquidity creation and bank performance when making their decisions.

First, to the best of the authors’ knowledge, this work is the first to analyse the relationship between the liquidity creation and performance of conventional and Islamic banks in MENA. Second, this study uses a sample of Islamic and conventional banks in MENA that have detailed information on the Orbis Bank Focus dataset, which is the most comprehensive database of commercial banks in the MENA region.

This paper investigates and compares the impact of foreign direct investment (FDI) inflows (flow and stock) on bank off-balance sheet (OBS) activities in aggregate as well as at the level of conventional and Islamic banks in GCC countries. It also tests hypotheses of direct and indirect impacts of FDI flow and FDI stock on OBS activities.

This paper uses both static and dynamic panel generalized methods of moments (GMM) estimation techniques to analyze the data of 70 GCC banks (45 conventional and 25 Islamic banks) over the period 1995–2017.

Empirical results indicate that FDI flow and FDI stock have a significant negative direct impact on OBS activities of GCC banks. The results lend support for the direct channel hypothesis for the effect of FDI on OBS activities and find no evidence in support of the indirect channel hypothesis. OBS activities from conventional banks appear to be more affected than those from Islamic banks.

The results of this study are expected to trigger appropriate policy response from the central banks of the respective GCC countries as well as their governments.

It is widely recognized that FDI inflows are of great importance to the economic development of emerging and developing countries. However, their impact on bank OBS activities has so far not been subject to accurate empirical assessment. This paper aims to fill this gap by providing an in-depth quantitative analysis of the impact of FDI flow and FDI stock separately, on bank OBS activities for both conventional and Islamic banks in GCC countries. It distinguishes between direct and indirect channels through which FDI flow and FDI stock may affect OBS activities for banks as a whole and both conventional and Islamic banks separately. It also uses both static and dynamic panel GMM estimation techniques to analyze the data.

The purpose of this paper is to examine loan commitments and lending patterns of community banks. The authors also test for shifts in these relationships in the period unwinding the subprime crisis.

Standard panel fixed-effect models as well as hierarchical (mixed) regression models are estimated given that banks operating in a specific geographic market may vary systematically with differences in firm-level characteristics. Hierarchical (mixed) regression models can control for within-counties and within-banks similarities. The authors also employ pooled estimations with clustered standard errors at the bank level as robustness check.

The empirical results show that the use of loan commitments is generally associated with moderate increase in profitability and higher insolvency risk. However, during the recent financial crisis, the use of loan commitments becomes safer. The use of loan commitments is more risky for community banks that concentrate more on loans that focus on real estate, while it is safer for community banks with higher equity. In regards to the performance of community banks’ balance sheet loan activities, a more concentrated loan portfolio results in lower return and higher insolvency risks. High loan growth generates higher return and higher risks.

Prior to the 2008 credit meltdown, community banks significantly increased their issuance of off-balance sheet loan commitments. While the ratio of loan commitments to total loans has come down in recent years it continues to exceed the levels reached in the 1990s. This evolution has, however resulted in little research regarding its implications on community bank profitability and risk.

The purpose of this paper is to explore the micro and macro factors affecting liquidity creation by scheduled commercial banks (excluding Regional Rural Bank) in India from 2005 to 2018.

Two measures of liquidity creation, the broad and narrow measures, are constructed using RBI data available on Indian banks. System generalized method of moments has been applied to explore the factors affecting liquidity creation.

This study finds high level of persistence in liquidity creation in banks. Variation in the broad measure is explained by equity ratio, market share, GDP, gross savings and lending rate, whereas the narrow measure is explained by equity ratio, market share, size and lending rate. The Global Financial Crisis had a negative effect on liquidity creation as per both the measures, and the impact was more severe for the broad measure as compared to the narrow measure.

This study finds a positive correlation between bank value and liquidity creation which suggests that the investors favourably evaluate banks that create more liquidity. This study is confined to India only.

There is a negative influence of capital on liquidity created by banks, which implies a trade-off that exists between financial stability and liquidity creation. Basel III norms impose higher capital and liquidity standards which will have negative implications for liquidity creation.

To the best of authors’ knowledge, this is the first study in the Indian context that focusses on factors affecting liquidity creation in a dynamic framework and determines the relationship between liquidity creation and market value of a bank.

Community banks were affected distinctly by changes in banking regulation in the 1990s when compared with large commercial banks. These banks offer non-traditional finance items, presumably to compete with these financial institutions. This study aims to examine the importance of accounting for off-balance sheet (OBS) items when estimating the financial performance of community banks.

This study applies a two-stage analysis pathway that initially calculates X-efficiency scores as part of the overall cost structure and then deploys data envelopment analysis bootstrapping method for a second-stage ordinary least square model.

Study findings indicate that failure to include OBS items in the X-efficiency calculation for community banks understates the efficiency performance of these banks. Furthermore, results indicate that factors internal and external to the community bank affect X-efficiency. Increases in OBS items are associated with growth in assets and growth in net non-interest income. Therefore, OBS items become an attractive alternative source of income and a mechanism for expanding output with the same volume of inputs. In addition, OBS items allow the largest community banks to deleverage their balance sheet, whereas the smallest community banks still emphasize on traditional lending products and benefit from existing equity. Also, larger banks may be using OBS items as a mechanism to isolate their performance from macroeconomic fluctuations.

Research limitations include a reduced number of community banks as consolidation accelerates partly because of compliance concerns.

The approach used supports a series of community bank managerial approaches that may be adopted by management.

The results of this study show several reasons why community banks may have managerial incentives to include OBS items. As observed by Gilbert et al. (2013), community banks are adjusting their product line so as to operate efficiently. Community banks must provide a product line which provides margin and meets customer needs at a profit to the firm. OBS items allow existing staff to provide funds without additional equity requirements from the balance sheets. The increase in OBS activities may signal the perception that the associated interest income is less risky and less costly than other alternatives, including adopting technologies to diversify traditional loan product offerings. As community banks tend to have lower default rates than their larger counterparts, the most likely explanation is that the OBS interest risk is more attractive than compliance or development of mechanisms to offer a broader suite of traditional loan products.

This paper aims to compare Islamic and commercial banks in the region of Middle East and North Africa (MENA) in terms of profitability and stability.

The study combines both the descriptive and analytical approaches. It considers panel data sets and adopts panel data econometric techniques.

The determinants of banks profitability and stability are different according to bank’s type. The results show that Islamic banks are more profitable than commercial banks, while on the other hand, commercial banks are more stable than Islamic banks. It is also concluded that banks profitability and stability are determined through some bank’s characteristics variables and macroeconomic variables in addition to the financial crises. MENA commercial and Islamic banking was affected by the financial crises in terms of profitability and stability. Additionally, larger banks are more stable than smaller banks, and off-balance sheet activities increase banks’ vulnerability for both commercial and Islamic MENA banks.

The most prominent limitation is the lack of data, as we had to exclude some variables because of missing observations. As a result, the authors could not use data envelopment approach and stochastic frontier approach to evaluate banks efficiency in MENA countries rather than the financial ratios.

Commercial banks need to enhance their capitalization to improve their profitability. Additionally, Islamic banks need to improve the risk assessment and adopt some of the available risk management tools. Moreover, the banking system should take advantage of relatively higher Islamic banks profitability and use the unexploited profit opportunities through spreading into those countries with limited availability, such as the North African countries.

This study address both banks profitability and stability in an emerging region that includes banks of different types (Islamic and commercial) which are located in different counties that allows accounting for operational and institutional differences.

This paper aims to investigate the potential impact of the Basel III liquidity requirements, namely, the net stable funding ratio (NSFR) and the liquidity coverage ratio (LCR), on bank liquidity creation.

The authors developed a dynamic panel model using the Quasi-Maximum Likelihood estimation on an unbalanced panel dataset of 129 commercial banks operating in 10 Middle Eastern and North African (MENA) countries from 2009 to 2017.

The results show that the NSFR significantly negatively affects liquidity creation. Similarly, the LCR exerts a substantial negative impact on the liquidity creation of the sampled MENA banks. These findings suggest that complying with both liquidity requirements tends to curtail liquidity creation. Moreover, further regression analysis of large and small bank sub-samples uncovered results similar to the overall MENA sample.

The findings raise interesting policy implications and suggest a trade-off between the benefits of the financial resiliency induced by implementing liquidity requirements and the creation of liquidity essential for promoting economic growth in the region.

Most empirical research focuses on the relationship between bank capital and liquidity creation. To the knowledge, this paper is the first to provide empirical evidence on the effect of both the NSFR and LCR regulatory liquidity standards on bank liquidity creation in the MENA region.