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1 – 10 of over 2000Soumya Bhadury and Bhanu Pratap
In the economic literature, a crisis has been thematically defined around bank runs, failure of large financial corporations, and financial distress. Section 1 summarizes our…
Abstract
In the economic literature, a crisis has been thematically defined around bank runs, failure of large financial corporations, and financial distress. Section 1 summarizes our learnings about international banking crisis, in terms of the origin and impact of such crises. This provides us an international benchmark before we delve deeper into India's banking distress, its size and trends. Section 2 focuses on the twin-balance-sheet crisis in India. On one side, corporate firms recklessly overleveraged, resulting in excess capacities and business diversification. On the other side, banks, both private and public, fell prey to excessive and procyclical credit lending and improper monitoring. Overall, too many projects were left too weakly monitored. Separately, we have focused on two subsections, first, how the financial institutions in India have overstretched their credit-disposal limit during market upturns. Second, we found absence of any theoretically grounded approaches to determine the capital-adequacy ratios (CARs) for the banks. In Section 3, we have identified the steps taken so far by the Banking regulator and the Government to resolve the crisis. Further, we critically examine the role of Korea Asset Management Corporation (KAMCO) towards a successful non-performing assets (NPAs) resolution in South Korea. Few key takeaways include, (1) establishing a public asset-management company (AMC) focused on maximization of recoveries and resolution of stressed assets, (2) well-defined governance structure for the AMC ensuring it works on market principles, shielded from political interferences, and (3) realistic asset valuation and transfer price that ensures limited downside risks for the public AMC.
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Richard Grover and Christine Grover
– The purpose is to review what is known about property bubbles and their causes.
Abstract
Purpose
The purpose is to review what is known about property bubbles and their causes.
Design/methodology/approach
The method has been to review the literature on bubbles in the property and other asset markets to examine their likely causes and whether there are specific aspects of the property market that make it more prone to bubbles.
Findings
The property market has features that make it susceptible to bubbles, particularly inelasticity in supply and the absence of short selling. Bubbles can develop where there are heterogeneous beliefs. The way in which property tends to be financed helps to facilitate bubbles and transmit their effects onto the wider economy.
Practical implications
The collapse in property prices after the financial crisis of 2008, like previous bubble collapses, has inflicted serious damage on the wider economy through losses of banks' capital, reductions in lending, and increased risk aversion. Understanding why bubbles exist offers the potential to devise policies to limit the impact of their collapse.
Originality/value
Much of the literature on asset bubbles is based on securities markets. It is important to recognise the differences between the property market and securities markets, particularly how investment is financed.
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Neil Fligstein and Zawadi Rucks-Ahidiana
The 2007–2009 financial crisis initially appeared to have destroyed a huge amount of wealth in the United States. Housing prices dropped about 21% across the country and as much…
Abstract
The 2007–2009 financial crisis initially appeared to have destroyed a huge amount of wealth in the United States. Housing prices dropped about 21% across the country and as much as 50% in some places, and the stock market dropped by nearly 50% as well. This chapter examines how the financial crisis differentially affected households at different parts of the income and wealth distributions. Our results show that all households lost about the same percentage of their wealth in that period. But because households in the top 10% of the wealth distribution owned many different kinds of assets, their wealth soon recovered. The bottom 80% of the wealth distribution had more of their wealth tied up in housing. We show that financial distress, indexed by foreclosures, being behind in mortgage payments, and changes in house prices were particularly concentrated in households in the bottom 80% of the wealth distribution. These households lost a large part of their wealth and have not yet recovered. Households that were most deeply affected were those who entered the housing market late and took out subprime loans. African American and Hispanic households were particularly susceptible as they bought houses late in the price bubble often with subprime loans.
M. Imtiaz Mazumder and Nazneen Ahmad
The purpose of this paper is to shed light on the causes of the 2007‐2009 mortgage crisis, liquidity crisis, stock market volatility in the USA and their spillover effects on the…
Abstract
Purpose
The purpose of this paper is to shed light on the causes of the 2007‐2009 mortgage crisis, liquidity crisis, stock market volatility in the USA and their spillover effects on the global economy.
Design/methodology/approach
The paper critically reviews the 2007‐2009 financial crisis from both academic and practitioners' viewpoints.
Findings
The paper explores how the liquidity crisis has evolved with the advent of poorly supervised financial products, especially the credit default swaps and subprime mortgage loans. Further, it analyzes the laxity in regulations that encouraged high financial leverages, shadow banking system and excessive stock market volatility and worsened the recent financial crisis.
Originality/value
The implication of this paper is to understand numerous policy reforms that will help the global capital markets to be more transparent and less vulnerable to systematic risks; the suggested policy reforms may also help to prevent such financial calamities in the future.
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Craig A. Depken, Harris Hollans and Steve Swidler
This paper aims to examine the anatomy of a real estate bubble. In the process, the paper identifies three phases of the market's evolution: flips, flops and foreclosures. An…
Abstract
Purpose
This paper aims to examine the anatomy of a real estate bubble. In the process, the paper identifies three phases of the market's evolution: flips, flops and foreclosures. An examination of the Las Vegas real estate market illustrates the three phases.
Design/methodology/approach
The paper examines transaction data from the metropolitan Las Vegas area (Clark County) from 1994 to 2009. The first part of the analysis identifies the three phases of the bubble and is descriptive in nature. This is followed by more formal tests of Granger causality.
Findings
In the early part of the sample, a large percentage of transactions are speculative or “flips” causing prices to rapidly increase. Eventually, flipping loses its profitability and over the last three years, there is an increasing number of foreclosures leading to falling prices. The descriptive analysis of the Las Vegas market is augmented with causality tests which show that prices were the driving force behind all three phases in the market's evolution.
Research limitations/implications
Future research might focus on underlying structural inter‐temporal relationships to augment the Granger causality tests.
Practical implications
Analysis shows that price is the driving force behind a bubble and that loan modification programs alone will not solve the current housing crisis.
Social implications
Government entities might expand neighborhood stabilization programs to affect both demand and supply of homes. Moreover, it might be prudent to include information related to flipping on multiple listing service agreements. Additionally, local governments should be consistent in their record keeping.
Originality/value
To the best of the authors' knowledge, this is the first paper to examine the housing bubble using an extensive set of transaction data.
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John H. Huston and Roger W. Spencer
The purpose of this paper is to develop a single variable indicative of the state of market speculation; to determine whether the Federal Reserve has attempted to quell…
Abstract
Purpose
The purpose of this paper is to develop a single variable indicative of the state of market speculation; to determine whether the Federal Reserve has attempted to quell speculation when it has been most rampant and whether such attempts were successful.
Design/methodology/approach
The paper examine the literature on market “bubbles” and the Federal Reserve's treatment of them; to determine a single variable reflective of market speculation via principle components integration; to examine the Federal Reserve's interaction with market speculation by estimating a vector autoregression version of the Taylor rule.
Findings
It is possible to construct a single variable representative of market speculation, termed the index of speculative excess that correlates well with standard views of market excess; the Federal Reserve did attempt to retard market speculation during the three major bull markets of the past century; monetary policy did little to inhibit market speculation.
Originality/value
Highly original in the construction of a single variable reflective of market speculation; joins the ongoing debate as to the extent of Federal Reserve concern with speculative activity and the Fed's poor record of accomplishment in this area.
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Wenling Lu and David A. Whidbee
This paper aims to examine the impact of charter type (national vs state), holding company structure, and measures of bank fragility on the likelihood of bank failure during the…
Abstract
Purpose
This paper aims to examine the impact of charter type (national vs state), holding company structure, and measures of bank fragility on the likelihood of bank failure during the late 2000s financial crisis.
Design/methodology/approach
The study estimates a series of logit regressions in an effort to identify the causes of failure and assess the role of the bank‐level characteristics while controlling for the economic and regulatory environment.
Findings
The empirical results indicate that established institutions were more likely to fail, dependent upon whether a bank received bailout funds or not, if they were relatively large, had relatively low capital ratios, had relatively low liquidity, relied more heavily on brokered deposits, held a relatively large portfolio of real estate loans, had a relatively large proportion of non performing loans, and had less income diversity. Consistent with being financially fragile, de novo banks and those banks that grew substantially prior to the crisis faced an increased likelihood of failure relative to established banks. However, capital levels were not significantly related to the likelihood of failure in de novo institutions.
Originality/value
This paper provides a comprehensive analysis of the possible business models' impact on the likelihood of failure during the recent financial crisis. It contributes to the ongoing debate regarding appropriate regulatory reform in the banking industry by shedding light on the extent to which the business model decisions made by bank managers have an impact on the stability of the banking system.
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