...As far as we know, there were more than five economic and financial crises during the recent 200 years. Society was suffering from such downturns, because each of them had its own characteristics and consequences which affected the whole economic world. In the next passages I would like to tell you about the history of financial crises and about the solutions made by governments and departments which helped to reduce the bad effects of it. Not a single year has gone by in the past two centuries where there was not a financial crisis somewhere in the world (see figure 1). Arguably, the world witnessed its first international financial crisis in 1825. The opening up of Latin America after the overthrow of the Spanish empire led to the opening up of international trade between England and the Latin American republics. The result was massive capital flows from London to finance infrastructure, mining and government spending. But once the capital outflows impinged on the Bank of England’s (BoE) gold reserves, the policy rate was raised, leading to a banking crisis. A sudden stop of capital flow from London resulted in banking panics in the US and currency crashes across Latin America. Figure 1: The history of financial crises Indeed, the crisis in 1825 marked the first of seven clusters of sovereign defaults in the period 1800 to 2010 In the first cluster of defaults, which happened during 1824-1834, 13 Latin...
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...International Financial Markets: What Can History Teach Us?* Michael D. Bordo Rutgers University and NBER Paper prepared for the conference “International Financial Markets: The Challenge of Globalization.” March 31, 2000. Texas A and M University, College Station Texas. * For valuable research assistance, I thank Antu Murshid. 1. Introduction Globalization has become the buzz word of the new millennium. It is viewed as the cause of many of the world’s problems as well as a panacea. The debate over globalization is manifest both in public demonstrations against the WTO in Seattle in the Fall of 1999 and the IMF and World Bank earlier. It also has led to a spate of scholarly and not so scholarly books on the subject.1 Until three years ago the consensus view among economists on the issue of the international integration of financial markets was very positive. The benefits of open capital markets stressed include: optimal international resource allocation; intertemporal optimization; international portfolio diversification and discipline on policy makers.2. However, the recent spate of crises in Latin America and Asia has led some to argue that the costs of complete liberalization of financial markets for emerging countries may outweigh the benefits.3 The paper focuses on the globalization of financial markets from the historical perspective of the past 120 years. In Section 2, I summarize the empirical evidence on the international integration of financial markets from 1880 to...
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...The Australian Financial System in the 2000s: Dodging the Bullet Kevin Davis* Abstract The global financial crisis (GFC) occupied only a quarter of the decade of the 2000s but, because of its severity and implications for future financial sector development, dominates the decade. The Australian financial system coped relatively well with the GFC, raising the question of whether there was something special about its structure and prior evolution which explains that experience. This paper reviews Australian financial sector performance and development over the decade, then provides a more detailed overview of the Australian GFC experience and its implications, and considers explanations for the Australian financial sector resilience. 1. Introduction The Australian (and global) financial system entered the first decade of the millennium preparing for a systems crisis, in the form of the Y2K computer scare, which on 1 January 2000 passed without event. But towards the end of the decade, the financial sector was faced with, arguably, its most serious systemic crisis ever, which the Australian financial system and economy weathered relatively well compared with advanced nations in the northern hemisphere.1 While the GFC occupied only one-quarter of the past decade (from mid 2007), it prompts the questions which this review must seek to answer. Was there something about the structure and evolution of the Australian financial system which explained its resilience in the face...
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...corporate governance and risk management in financial regulatory reform As regulators and policymakers continue their efforts to find the best way to prevent a repetition of the financial crisis that almost engulfed the world economy, re-evaluating how corporate governance and risk management can make the financial system more secure has become a crucial question. Clifford Chance organised three round-table debates between 2009-2010 to assess this issue. With financial regulatory reform continuing to dominate the global political agenda, Clifford Chance has decided to publish a summary of these discussions as part of its commitment to promoting a balanced and informed analysis of the challenges that lie ahead. Much has been written and spoken about the causes of the financial crisis. Most people accept it is time to learn the lessons and move on. While the need to reform the banking and the financial services sector is beyond question, there is a tension between the desire to ‘get it right’ and the intense pressure for politicians and regulators to act quickly and decisively. In the ensuing debate over regulation and reform, the real issues of corporate governance and risk management have been largely obscured by the remuneration question. “There are some conflicting imperatives,” said Michael Bray, a partner in Clifford Chance’s London office. “We still have a long way to go.” Among a host of challenges facing the global financial community are questions of its own reputation...
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...Banking Academy | City University of Seattle | CORPORATE FINANCE THE GLOBAL FINANCIAL CRISIS 2008 Group’s member:Nguyễn Như Nam (C)Phan Thu AnNguyễn Thùy DungHoàng Bá SơnNgô Thị Ánh TuyếtDate: 28/11/2014 | AbstractIn 2008 the world was fell into the worst financial crisis since the Great Depression of 1929-1933. Although this crisis has gone, however, its consequences for the economy of many countries is very serious, even now many nations are still struggling to escape difficulty. Just in a short period, the crisis originating from America has spread to all continents. It led to a series of serious consequences such as the falling in stock markets, increasing in unemployment rates, large financial institutions had been collapsed or bought out, and governments in many strong countries had to come up with rescue packages to bail out their financial systems. So why does it have tremendous destructive power? What are its causes and its development? What are the consequence it bring to the world? And what are the lessons drawn from this terrible event? Derived from these questions above, this paper will generalize about the global financial crisis 2008. | Table of Contents Abstract i 1. Background 1 2. Reasons 2 2.1 The housing bubble 2 2.2 Fed had lower interest rates for a long time. 2 2.3 The subprime boom 3 2.4 Securitization (MBS, CDO) and Credit default swaps (CDSs) 3 2.5 The credit rating companies. 5 2.6 Structured investment vehicle...
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...EXECUTIVE SUMMARY The following report contains a critical analysis of the capital structure strategy employed by Leighton Holdings Ltd during the Global Financial Crisis (GFC) and also an assessment of optimal capital structure Leighton should use to fund future investments. Examination of the changes of the capital structure of the company over pre-GFC and post-GFC period (2004-2010) reveals a range of considerations were deliberated in the financing decision; these include not only the capital market conditions but also the size and urgency of funding required as well as costs and availability of alternate sources of funds. Applying various theoretical hypotheses in conjunction with a comparative study using Peer Firms, the report finds the current debt/equity mix lies in the high range of estimated optimal values. The current structure does compensate for the current volatility by reducing exposure to debt markets but also attempts to efficiently exploit a recent recovery in debt markets. Nonetheless, on the backing of peer analysis, Leighton should reduce its reliance on debt to better position itself against uncertainty and also exploit its advantages in debt markets to refinance debts for longer terms, hence locking in current rates. INTRODUCTION Leighton Holdings Ltd (LEI), the largest construction and contract mining service providers in Australia, has significant exposure both internationally and in a number of diverse markets. It’s core business however, which...
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...Richardson and I. Walter DOI: 10.1561/0500000025 Manufacturing Tail Risk: A Perspective on the Financial Crisis of 2007–2009 By Viral V. Acharya, Thomas Cooley, Matthew Richardson and Ingo Walter Contents 1 Introduction 2 How Did We Get There? 2.1 2.2 2.3 The Panic of 1907 and Its Aftermath Bank Competition, Financial Innovation and Risk-Taking in the Last Decades of the 20th Century Risk-Taking Incentives of Financial Institutions 249 253 253 258 264 3 The New Banking Model of Manufacturing Tail Risk 4 Alternative Explanations of the Financial Crisis 5 Conclusion A Appendix: Tail Risk in the Rest of the World References 273 292 311 314 320 Foundations and Trends R in Finance Vol. 4, No. 4 (2009) 247–325 c 2010 V. V. Acharya, T. Cooley, M. Richardson and I. Walter DOI: 10.1561/0500000025 Manufacturing Tail Risk: A Perspective on the Financial Crisis of 2007–2009 Viral V. Acharya1 , Thomas Cooley2 , Matthew Richardson3 and Ingo Walter4 1 2 3 4 Stern USA, Stern USA Stern USA Stern USA School of Business, New York University, New York, NY 10012, vacharya@stern.nyu.edu School of Business, New York University, New York, NY 10012, School of Business, New York University, New York, NY 10012, School of Business, New York University, New York, NY 10012, Abstract We argue that the fundamental cause of the financial crisis of 2007–2009 was that large, complex financial institutions (“LCFIs”) took excessive leverage in the form of manufacturing tail risks that were...
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...Teulings and Richard Baldwin CEPR Press abcde Centre for Economic Policy Research (CEPR) The Centre for Economic Policy Research (CEPR) is a network of almost 900 research economists based mostly in European universities. The Centre’s goal is twofold: to promote world-class research, and to get the policy-relevant results into the hands of key decision-makers. CEPR’s guiding principle is ‘Research excellence with policy relevance’. A registered charity since it was founded in 1983, CEPR is independent of all public and private interest groups. It takes no institutional stand on economic policy matters and its core funding comes from its Institutional Members and sales of publications. Because it draws on such a large network of researchers, its output reflects a broad spectrum of individual viewpoints as well as perspectives drawn from civil society. CEPR research may include views on policy, but the Executive Committee of the Centre does not give prior review to its publications. The opinions expressed in this report are those of the authors and not those of CEPR. Chair of the Board President Director Research Director Guillermo de la Dehesa Richard Portes Richard Baldwin Kevin Hjortshøj O’Rourke Contents Introduction Richard Baldwin and Coen Teulings 1 Opening the debate 1 Reflections on the ‘New Secular Stagnation...
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...GLOBAL PRIVATE EQUITY REPORT 2013 About Bain & Company’s Private Equity business Bain & Company is the leading consulting partner to the private equity (PE) industry and its stakeholders. Private equity consulting at Bain has grown 13-fold over the past 15 years and now represents about one-quarter of the firm’s global business. We maintain a global network of more than 400 experienced professionals serving PE clients. Our practice is more than three times larger than that of the next-largest consulting firm serving private equity funds. Bain’s work with PE spans fund types, including buyout, infrastructure, real estate, debt and hedge funds. We also work with many of the most prominent limited partners (LPs) to PE firms, including sovereign wealth funds, pension funds, financial institutions, endowments and family investment offices. We support our clients across a broad range of objectives: Deal generation: We help PE funds develop the right investment thesis and enhance deal flow, profiling industries, screening companies and devising a plan to approach targets. Due diligence: We help funds make better deal decisions by performing diligence, assessing performance improvement opportunities and providing a post-acquisition agenda. Immediate post-acquisition: We support the pursuit of rapid returns by developing a strategic blueprint for the acquired company, leading workshops that align management with strategic priorities and directing focused initiatives. Ongoing value addition:...
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...repeatedly indicated that the logical choice for globally accepted standards is the International Financial Reporting Standards (IFRS) issued by the IASB. However, in line with other large economies, such as Japan, India and China, as of June 2012 the US had not adopted IFRS.1 This paper explores when and how, and indeed if, IFRS will become the basis for the financial reporting of domestic SEC registrants in the US. Readers are encouraged to first review Erchinger’s (2012) history of the SEC’s consideration of IFRS in the US included in this forum and especially Table 1 of this article, which provides a chronology of SEC releases regarding incorporation of IFRS into the US financial reporting model. This paper complements Erchinger’s by assessing approaches recently explored by the SEC for incorporating IFRS into the US financial reporting model. A decision can lead to correct or incorrect action. However, as articulated by many SEC constituents, uncertainty associated with repeated delays and hence ‘no decision’ by the SEC is clearly not in the best interest of investors and other financial statement users, registrants, auditors and students. Furthermore, as it considers various models for incorporation of IFRS into the US financial reporting model, the SEC and its constituents must understand that only if all countries, including the US, adopt IFRS as issued by the IASB will the SEC’s pursuit of global accounting standards be attainable. Adapting or converging with IFRS is...
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...RESEARCH PAPER 99/14 11 FEBRUARY 1999 The Asian Economic Crisis This paper considers the economic crisis that began in the financial markets of South East Asia in 1997 and the consequences for the economies of the region and the rest of the world. The paper provides a chronology of and explores the factors that led to the crisis. An overview is given of the policy measures that the international financial institutions (IFIs), such as the IMF, have taken to deal with the crisis. Some of the arguments and policy proposals made to try to avoid future crises are also covered. Eshan Karunatilleka ECONOMIC POLICY AND STATISTICS SECTION HOUSE OF COMMONS LIBRARY Recent Library Research Papers include: 98/119 98/120 99/1 Unemployment by Constituency - November 1998 Defence Statistics 1998 The Local Government Bill: Best Value and Council Tax Capping Bill No 5 of 1998-99 16.12.98 22.12.98 08.01.99 99/2 99/3 99/4 Unemployment by Constituency - December 1998 Tax Credits Bill Bill 9 of 1998-9 The Sexual Offences (Amendment) Bill: 'Age of consent' and abuse of a position of trust [Bill 10 of 1998-99] 13.01.99 18.01.99 21.01.99 99/5 99/6 99/7 The House of Lords Bill: 'Stage One' Issues Bill 34 of 1998-99 The House of Lords Bill: Options for 'Stage Two' Bill 34 of 1998-99 The House of Lords Bill: Lords reform and wider constitutional reform Bill 34 of 1998-99 28.01.99 28.01.99 28.01.99 99/8 99/9 99/10 99/11 99/12 Economic Indicators Local Government...
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...Annual Report 2008-09 Productivity Commission Annual Report Series © COMMONWEALTH OF AUSTRALIA 2009 ISSN ISBN 978-1-74037-286-2 1035-5243 This work is subject to copyright. Apart from any use as permitted under the Copyright Act 1968, the work may be reproduced in whole or in part for study or training purposes, subject to the inclusion of an acknowledgment of the source. Reproduction for commercial use or sale requires prior written permission from the Attorney-General’s Department. Requests and inquiries concerning reproduction and rights should be addressed to the Commonwealth Copyright Administration, Attorney-General’s Department, Robert Garran Offices, National Circuit, Canberra ACT 2600. This publication is available in hard copy or PDF format from the Productivity Commission website at www.pc.gov.au. If you require part or all of this publication in a different format, please contact Media and Publications (see below). Publications Inquiries: Media and Publications Productivity Commission Locked Bag 2 Collins Street East Melbourne VIC 8003 Tel: Fax: Email: (03) 9653 2244 (03) 9653 2303 maps@pc.gov.au General Inquiries: Tel: (03) 9653 2100 or (02) 6240 3200 An appropriate citation for this paper is: Productivity Commission 2009, Annual Report 2008-09, Annual Report Series, Productivity Commission, Canberra JEL code: D The Productivity Commission The Productivity Commission, is the Australian Government’s independent research and advisory body on a range...
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...O C C A S I O N A L PA P E R S E R I E S N O 1 2 3 / F E B R UA RY 2 011 THE INTERNATIONAL MONETARY SYSTEM AFTER THE FINANCIAL CRISIS by Ettore Dorrucci and Julie McKay OCCASIONAL PAPER SERIES NO 123 / FEBRUARY 2011 THE INTERNATIONAL MONETARY SYSTEM AFTER THE FINANCIAL CRISIS by Ettore Dorrucci and Julie McKay1 NOTE: This Occasional Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. In 2011 all ECB publications feature a motif taken from the €100 banknote. This paper can be downloaded without charge from http://www.ecb.europa.eu or from the Social Science Research Network electronic library at http://ssrn.com/abstract_id=1646277 1 European Central Bank, Ettore.Dorrucci@ecb.europa.eu, Julie.McKay@ecb.europa.eu. The views expressed in this paper do not necessarily reflect those of the European Central Bank. The authors would like to thank, outside their institution, A. Afota, C. Borio, M. Committeri, B. Eichengreen, A. Erce, A. Gastaud, P. L'Hotelleire-Fallois Armas, P. Moreno, P. Sedlacek, Z. Szalai, I. Visco and J-P. Yanitch, and, within their institution, R. Beck, T. Bracke, A. Chudik, A. Mehl, E. Mileva, F. Moss, G. Pineau, F. Ramon-Ballester, L. Stracca, R. Straub, and C. Thimann for their very helpful comments and/or inputs. © European Central Bank, 2011 Address Kaiserstrasse 29 60311 Frankfurt am Main, Germany...
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...Basel Committee on Banking Supervision Basel III: A global regulatory framework for more resilient banks and banking systems December 2010 (rev June 2011) Copies of publications are available from: Bank for International Settlements Communications CH-4002 Basel, Switzerland E-mail: publications@bis.org Fax: +41 61 280 9100 and +41 61 280 8100 © Bank for International Settlements 2010. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISBN print: 92-9131-859-0 ISBN web: 92-9197-859-0 Contents Contents ...................................................................................................................................3 Introduction ...............................................................................................................................1 A. Strengthening the global capital framework ....................................................................2 1. 2. 3. 4. Raising the quality, consistency and transparency of the capital base ..................2 Enhancing risk coverage........................................................................................3 Supplementing the risk-based capital requirement with a leverage ratio ...............4 Reducing procyclicality and promoting countercyclical buffers ..............................5 Cyclicality of the minimum requirement .................................................................5 Forward looking provisioning ....
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...Young business risk radar for mining and metals Executive summary The top 10 business risks 1. Resource nationalism 2. Skills shortage 3. Infrastructure access 4. Cost inflation 5. Capital project execution 6. Social license to operate Editorial — Prospects and perils: facing up to political risks in mining and metals 7. Price and currency volatility 8. Capital management and access 9. Sharing the benefits 10. Fraud and corruption 3 4 10 11 14 17 20 23 26 28 32 35 38 40 Under the radar Getting prepared 42 46 The Ernst & Young business risk radar for mining and metals Up from 2011 Down from 2011 Same as 2011 New entry The risks closest to the center of the radar are those that pose the greatest challenges to the mining and metals sector in 2012 and into 2013. The business risk report Mining and metals 2012–2013 3 Executive summary 4 The business risk report Mining and metals 2012–2013 A more complex and extreme risk environment “The bottom line is that if returns start to wane, then there is a greater imperative for organizations to tightly and more effectively manage their risks to maintain an adequate risk/reward balance.” Mike Elliott Global Mining and Metals Leader, Ernst & Young On the surface, the top ten risks don’t look all that different from last year, but below the surface there has been an absolute shift that has made them significantly different. The risks facing the sector have become more extreme and more complex...
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