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The Banks’ Financial Reporting and the Downfall of the Banking Sector

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Aleszczyk A. A.

Journal of Management and Financial Sciences

2015

vol. 19(1)

9-36

The recent literature examines the causes of the financial crisis of 2007–08 and their impact on global financial markets and economies. This paper attempts to close the gap in the banking sector’s research – linking inefficiencies of financial reporting with the funding position of banks. The analysis includes three accounting practices and three ways in which the financing of banks was hindered. Importantly, this work examines economic mechanisms that demonstrate a causal relation between imperfect financial reporting and illiquidity in the banking sector. The paper argues that decreased competitiveness of the banking industry stems from problems in effective reporting of this sector. Arguably, a better understanding of vulnerable areas of information disclosure and transmission channels would allow regulators to make future crises in banking less severe.

DETERMINANTS OF LEVERAGE AND LIQUIDITY AND BANK SIZE – CROSS-COUNTRY STUDY

100%

Olszak M., Kowalska I.

Bezpieczny Bank

2016

issue 4 (65)

27-59

This paper aims to identify the role of bank size for the sensitivity of leverage and liquidity funding risk to their determinants (both bank-specific and macroeconomic). Applying the two-step robust GMM estimator to individual bank data from over 60 countries covering the period 2000–2011 our study shows that increases in previous period funding liquidity risk are associated with increases in leverage in the full sample and in large banks, but not in other banks. The liquidity of large banks tends also to increase with leverage levels. With reference to the impact of macroeconomic conditions on leverage of banks we find that leverage of large banks is the most procyclical during a crisis period. Liquidity risk is procyclical during non-crisis periods. However, during a crisis period this liquidity risk is countercyclical, consistent with the view that even slight improvements in macroeconomic environment do not stimulate banks to increase their exposure to this risk. Such effect is particularly strong in the case of large banks. Generally, such counter-cyclicality of liquidity risk of large banks may result in weaker access to the bank financing necessary to stimulate investments in the real economy during a crisis period. This may have further negative consequences for the real economy, generating an extended period of sluggish economic growth.

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1 Bezpieczny Bank

1 Journal of Management and Financial Sciences

1 Aleszczyk A. A.

1 Kowalska I.

1 Olszak M.

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The Banks’ Financial Reporting and the Downfall of the Banking Sector

DETERMINANTS OF LEVERAGE AND LIQUIDITY AND BANK SIZE – CROSS-COUNTRY STUDY