Study On The Main Determinants Of Bank Failure Finance Essay - Free Essay Example

Sample details Pages: 4 Words: 1094 Downloads: 7 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? During the last decade, banking industry has become highly competitive, resulting in many banks to use aggressive strategies in order to survive or maintain their respective share in the market. This tendency of these financial institutions to become more aggressive when confronted with competitive pressures has led many banks to fail. Banking industry has gone through significant changes and is continuing to undergo major structural alterations. This dynamic structure results in an uncertain environment for the industry. The recent financial crisis has raised a large number of concerns about the strength of the current banking system to provide stability to the financial markets. Banks taking too much risk are highly prone to fail. Banks may fail if equity is insufficient to provide a safe cushion to write down any non-performing loans. Before recent financial turmoil, banks were more concerned about their profitability. They attempted to maximize profits t o increase shareholders wealth by increasing their financial leverage. A large deposit base provided for high financial leverage for banks, while their equity cushion continued to diminish. Most banks were using a ratio of more than twenty times debt compared to their equity. Low level of equity provided a very small cushion for the banks in case of a financial turmoil. A bank with three percent equity could suffer a loss of all its shareholders wealth if it lost just a minor fraction of its loan assets. For example, bank with an equity base of 10 billion pounds and a loan base of as high as 300 billion pounds, would have lost all its equity with a decrease of 3.33 % in the value of its loan assets. Banks need to manage their liquidity risk with extreme caution. A bank that maintains to little liquid reserves can go bankrupt if it fails to meet its obligations on time. These obligations include payment on demand deposits and interest payments to depositors holding cash in thei r saving accounts. If the bank is holding too little cash, it can usually borrow money through inter-bank borrowing at the federal funds rate. However, at times of financial crisis the liquidity of the market could be low. In the recent financial crisis rumours about bank failures resulted in a run on banks. Depositors wanted to withdraw their money before a suspected bankruptcy. On a usual day banks only anticipate a certain maximum percentage of funds to be withdrawn and hence they maintain cash to meet regular operational needs. However, in case of a run on banks all depositors simultaneously appear at bank counters to withdraw their deposits. Such a panic situation can result in bankruptcy of any financially sound bank in a matter of hours. Liquidity risk requires active management, as too much liquidity can be as much of a problem as is too little liquidity. Banks operate in a highly competitive environment and they are always competing for deposits. Those banks that prov ide higher interest rates relative to competition are able to attract more deposits and thereby expand their operations. Those that provide low interest rates suffer the risk that depositors will withdraw their funds to banks, which pay a higher return. To provide a higher return a bank needs to make profitable loans to other parties. Extending loans for businesses and for consumers restrict the liquidity of the banks. Therefore, there is a trade-off involved and the management has to choose the optimum level between return and liquidity. An economic crisis results in high levels of unemployment and can cause the non-performing loans to increase significantly. Lack of diversification into various asset classes in financing loans can result in major bank failures. During the recent banking crisis, subprime lending was at its peak. A component that lacks diversification was the subprime mortgage lending. A large number of mortgagees were speculating on housing prices and did not ha ve sufficient means to pay the dues. Banks were lending on zero down payment options where the mortgage holder had a call option to exercise. If housing prices increase, the mortgagee can sell the house, pay the mortgage amount and make a profit without any investment. However, if housing prices go down the mortgagee only lost the payments made already, which acted as an option premium. As the housing market collapsed, the losses were to be borne by the banking industry. Mortgages are pooled together to form collateralized mortgage obligations. These securities make mortgages from illiquid investments into liquid securities that sell in the secondary market. The high interest rates paid on mortgages and the liquidity feature of the securities attracted investors to invest trillions. The high demand for mortgage-backed securities in turn resulted in too much capital availability to create excessive low quality mortgages. As economy staggered and unemployment increased a high rate of mortgage default created the subprime crisis resulting in many banks to fail. As competitive pressures, increase only banks with high level of efficiency can survive. Larger banks enjoy both economies of scale and economies of scope. In an economic downturn, small and medium banks cannot maintain their net interest margins and tend to respond weakly to competitive pressures. Therefore, in an attempt to survive banks initiate mergers and acquisitions. Through mergers, these banks aim to improve efficiencies and reduce costs in order to improve their net interest margins and survive the hard times. Mergers do not always attain their desired goals. Many times the managements do not get along well, at other times the estimated synergies of the merger tend to be overestimated. Also, valuation models could have been erroneous resulting in huge write down of goodwill assets in the years to come. This can also wipe away the equity of the bank and eventually cause a bank to fail. Banks seek to maintain an active match between their assets and liabilities. A large gap between assets and liabilities can result in adverse movements. If a bank has a positive gap, its assets are more interest rate sensitive than its liabilities. The goal of banks is to maintain minimum interest rate exposure and keep the gap at a minimum. At times bank management can get more ambitious and take bets on interest rate movements. In this case, an unexpected movement in interest rates can be disastrous for a bank. In conclusion, a bank can fail due to various reasons mostly because of poor risk management techniques. Banks could be lending aggressively and create a large pool of subprime assets or they could maintain too little liquidity to meet their obligations during a financial crisis. All these reasons together can cause a bank to fail. Don’t waste time! Our writers will create an original "Study On The Main Determinants Of Bank Failure Finance Essay" essay for you Create order

The Disability Employment Discourse Within The Perceptions...

4.1 Introduction This literature review was designed to investigate awareness of the disability employment discourse within the perceptions of people with LDD and their circle of support; what do the people it directly affects know about employment services and opportunities? It focuses on one question: What are parents, carers and young people’s understanding of employment opportunities for those with learning difficulties and disabilities? In order to address this question, academic and policy literature from the last 10 years on disability employment was reviewed. Although a threshold of 10 years was preferred for this research, it was not always possible to maintain that base and some literature is reported from outside that limitation. The literature search focused on studies that were summaries of existing research on the topic, new research that included extensive literature reviews, and government sponsored studies of disability employment programmes such as the Work Choice and Access to Work. Many theories have projected the importance of disability employment for both the individual and the community. Although the literature covers a wide variety of such theories, this review will focus on three themes which emerge throughout the literature reviewed. These themes are: †¢ Disability disclosure †¢ Disability employment rates †¢ Disability employment programmes 4.2 Approaches to literature analysis The approach used for the analysis of the literature began with

How to Structure the Personnel Department

Question: Discuss about the How to Structure the Personnel Department. Answer: Conducting survey to determine that whether an organization can achieve its business goals through a hard or soft approach to HRM most appropriately: From the survey it has been recognised that the human resource management (HRM) is involved with managing the people through the employee-employer relationship. This is the crucial activity which helps an organisation for the achievement of the objective for the organization. Considering the view of Armstrong (2010), there is the instrumental or hard approach to the HRM which stresses on the close integration about the human resource systems, policies and activities with the business strategy. The hard approach also views human resource as vital factor of the production like capital and land. Therefore, it can be inferred that the hard approach is entirely focused on the HRM. The hard approach often becomes the reason to obtain competitive advantage by the organisations. On the other hand, Fowler (2012) addressed that there is the humanistic or soft approach for HRM which still emphasizes on the significance of integrating an HR strategy and organizational strategy. The soft approach suggests that best outcome can be obtained in those circumstances where the human resources are considered to be valued assets and crucial source of the competitive advantage as stated by (Guest, 2009). Thus, the focus is on the development and improvement of the asset and producing commitment through ensuring that employee needs have been satisfied. Thus the vital focus of soft approach is also on the human resource management. Thus to achieve the business goal for an organization, it is required to incorporate both the perspectives the hard and soft approach to HRM. Gunnigle et al. (2013) stated that while the hard aspect would be responsible for the human resource planning, strategy formulation, the soft feature would help to conduct consultation and communication wit h employees, leadership and motivation. Thus, it has been found from survey that the peers highly believe that the combination of both hard and soft approach to HRM is aimed to ensure the meeting of the organizational goals. Reflect on findings: Result of the survey findings: From the survey, it has been found that the best approach for HRM is to maintain the balance between both the humanistic and the instrumental approach. Thus, the balancing act between soft and hard approach would be helpful to effectively produce the efficient organisation. On the other hand, there is the limitation of considering the soft approach. It is when all employee benefits are summed up, the workforce cost makes the business at the competitive disadvantage position as cited by (Marchington Wilkinson, 2011). How HRM evolved over time: Initially, the human resource management was known to be the personnel management approach for maximum of 20th century (McGovern et al. 2010). Then the nature was mainly administrative. It had concerned itself through employee record keeping, implementing functions like training, recruitment, welfare oriented activities and others to meet the statutory compliance. In later decades, the personnel management approach had been evolved towards the traditional human resource approach. Such new approach had been considered to be valuable resources for the workers due its more dynamic nature. Gradually this human resource management turned to be the line management function being linked with the core business activities (Sisson Storey, 2012). Thus few crucial activities which have been found in HR department are recruitment and selection, training and development, motivation and the employee benefits and the appraisal and performance related salaries. Thus, the final evolution of HRM is th e strategic approach of human resource management. Role of HRM in contributing to realization of business goals: HRM is the strategic activity by which the managers establish the long-term direction of the organization, develop the strategies to achieve business goal and also set particular performance objectives. Thus, it has been found that HRM plays key role in reflecting strategic objectives and also values within organization. Considering the view of Marchington Wilkinson (2011), it also recognises the competencies of the organization and matches the people with those. HRM is crucial for supporting the climate, culture and the organizational processes for attracting and retaining the effective employees. Thus, the HRM plays vital role to build and sustain the organizational commitment. Factor or circumstances may change preferred approach to HRM: The circumstances which require improvement in the organisational performance level and need to generate competitive advantage then the preferred approach of HRM shifts from soft to hard. On the other hand, when there is the need to integrate all HR related practices and policies with the strategic business objectives, the HRM approach is shifted from the hard to the soft (Fowler, 2012). References: Armstrong, M. (2010). A Handbook of Personnel Management Practice, London: Kogan Page. Fowler, A. (2012). How to Structure the Personnel Department, Personnel Management Plus, 3(1), 22- 3 Guest, D. (2009). 'Human Resource Management and Industrial Relations', Journal of Management, 24(5), 503-521. Gunnigle, P., Heraty, N. Morley, M. (2013). Personnel and Human Resource Management Theory and Practice in Ireland, Dublin: Gill and Macmillan Marchington, M. Wilkinson, A. (2011). Core Personnel and Development, London: IPD. McGovern, P., Gratton, L., Stiles, P., Hope-Hailey, V. Truss, C. (2010). Human Resource Management on the Line?, Human Resource Management Journal, 7(4), 12-29. Sisson, K. Storey, J. (2012) Managing Human Resource and Relations, Great Britain.

Populist and Progressives free essay sample

Populists tended to be poor and uneducated. They had ideas such as government ownership of major industries. The Populists supported labors demand for an eight hour work day. The most controversial Populist demand concerned the money supply. Farmers being both sellers and debtors, saw inflation as a way to improve their standard of living but they wanted to expand the money supply. Farmers convinced the government to use silver as well as gold to back the money supply. The congress passed the Bland-Allison Act and the Sherman Silver Purchase.Populist platform urged congress to authorize free and unlimited minting of silver. The Populists were united in favoring the minting of silver to expand the money supply. Democrats agreed with the Populist, but most Republicans favored the gold standard and a smaller money supply. Democrats agreed on a presidential candidate that was with the mint silver, which was William Jennings Bryan. Having joined the Democrats in a losing cause, their party collapsed. We will write a custom essay sample on Populist and Progressives or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The attempt to unite urban workers and farmers into a mass movement for economic reform had failed.Progressivism began in the early 1 sass. It had roots in several earlier movements such as the Liberal Republican and the Mumps. Progressivism centered in cities. Progressives were middle class and well educated. Progressives stayed in the political mainstream. They aimed not to remake American society, but to merely make the existing system work better and to do this they were willing to make compromises. Progressivism offered the middle class, business leader, and farmers a safe reform. By 1900 the American economy was strong.As a result people of all classes felt more confident and more willing to compromise. Progressives made city and state governments more democratic. They also tightened regulations on business. For Progressives, honest and efficient government was an important goal, but not the ultimate one. They saw government as a tool to be used to promote the welfare of all citizens. Regulating business was, for both city and state governments, a major part of that task. Progressives passed more laws aiming at protecting various groups, especially children.The Populist and Progressives had many similarities. What the Populist fought for the progressives continued on fighting. They fought for many similar things for example, they fought for the eight hour work day. The Populist and Progressives were for the people. They wanted to improve their chances for success, a better economy, improve the American society. As you can conclude, the Populist and Progressives had differences, but they also have similarities. They had different ideas, but were fighting for the same things. What one started the other continued to pursue.