K.P.V. O'Sullivan and Tom Kennedy
The purpose of this paper is to explore the Irish banking crisis and explain how various factors contribute to a collapse in asset prices, an economic recession and the near…
Abstract
Purpose
The purpose of this paper is to explore the Irish banking crisis and explain how various factors contribute to a collapse in asset prices, an economic recession and the near failure of the banking system. The paper seeks to document the dangers of pro‐cyclical monetary and government policies, particularly in an environment of benign financial regulation and pent‐up demand for credit.
Design/methodology/approach
The paper maps the Irish banking crisis against its general background. It describes the roots of the crisis, with particular attention given to government and monetary policies, the practices of the financial regulator and banks during the property bubble, together with the difficulties associated with the international sub‐prime crisis.
Findings
While the global financial crisis exacerbated matters, the banking crisis in Ireland was largely a home‐grown phenomenon. The crisis stemmed from the collapse of the domestic property sector and subsequent contraction in national output. Its root cause can be found in the inadequate risk management practices of the Irish banks and the failure of the financial regulator to supervise these practices effectively.
Originality/value
The paper documents the “Celtic Tiger” phenomenon of the last decade: the Irish economic and property miracle, its sharp decline, and the sub‐prime crisis. It delineates one of the most severe banking and economic crisis in a developed country since the great depression with a number of key policy lessons for rapidly expanding economies.
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Craig Anthony Zabala and Jeremy Marc Josse
The purpose of this paper is to review the continued development of the “shadow banking” market in the USA, namely, lending to the private middle market, defined as financings of…
Abstract
Purpose
The purpose of this paper is to review the continued development of the “shadow banking” market in the USA, namely, lending to the private middle market, defined as financings of $5-100m to non-public, unrated operating entities or pools of assets with not more than $50m in earnings before interest, taxes, depreciation and amortization.
Design/methodology/approach
The analysis includes a continued review of an innovative segment of the financial markets and primary evidence from direct participation in four actual cases of private, non-bank lending between 2013 and 2015 and theoretical observations around that data.
Findings
Although there have been considerable challenges, historically, in providing credit for small and mid-sized businesses in the USA, the authors show further evidence that private middle market capital is growing (post credit crisis) at a dramatic pace, in part because of excessive constraints placed on the regulated depositary institutions. The authors also explain the nature of the shadow banking innovation and how it is intrinsically linked to “arbitraging” often excessively restrictive banking regulation. The growing US shadow banking market, while providing an important service to middle market companies, may pose a new systemic risk post 2007-2008 credit crisis in the USA.
Research limitations/implications
Any generalization is limited because of the difficulty in extrapolating from a small number of specific case studies and the absence of adequate survey data for the US capital markets and the limited examples examined.
Practical implications
This research calls for additional case studies, including participant observation research that offers a unique close-up view of financial behavior that is often beyond the view of regulators and the public. Data obtained may be useful in providing a deeper, more timely understanding of credit market behavior and contribute to efforts at formal financial modeling as well as the development of practical regulatory regimes.
Social implications
The shadow credit market is a key source of funding for the global financial system, thus contributing to job creation and economic growth. The authors demonstrate the value of financial innovations and show that shadow credit fills a void left by depository financial institutions, shifting much of the risk from the public to investors. This research increases transparency in the operation of this market, which is extremely important for the industry, the government and the public. The authors offer a modest attempt at understanding credit behavior to avoid a repeat of the 2007/2008 financial crisis.
Originality/value
Direct participation is unique to the firms studied. Value is in developing a general framework to analyze an emerging credit market in advanced economies.
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Hannah R. Marston, Linda Shore, Laura Stoops and Robbie S. Turner
Daniel A. Street and Dana R. Hermanson
This paper reviews academic literature related to the consequences that outside directors and boards may face in the wake of earnings restatements and suggests directions for…
Abstract
This paper reviews academic literature related to the consequences that outside directors and boards may face in the wake of earnings restatements and suggests directions for future research. We examine loss of board seats; recruitment of new directors; proxy recommendations and shareholder support; pre-emptive director departures; director wealth effects; director reputation, litigation, and sanction risks; international evidence; and legal proposals for reform. The overall picture that emerges from the literature is that directors’ primary risk in the wake of earnings restatements is loss of board seats, in part through adverse proxy advisor recommendations and reduced shareholder support. Directors typically face little risk of legal liability or SEC sanctions, and some directors pre-emptively leave a problem company’s board and reduce their loss of interlocked board seats. Some legal scholars have called for director liability to be increased so as to promote more vigilant board oversight. Companies often focus on increasing the independence of the board in the wake of a restatement in an effort to repair organizational reputation. While researchers have revealed a host of important findings to date, much more can be learned about the effects of restatements on outside directors and boards.
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– The purpose of this paper is to chart the development of bancassurance as a method of selling insurance and how it fits within the regulatory environment in Ireland.
Abstract
Purpose
The purpose of this paper is to chart the development of bancassurance as a method of selling insurance and how it fits within the regulatory environment in Ireland.
Design/methodology/approach
General review of the leading financial institutions retailing insurance in Ireland and their respective processes in retail distribution.
Findings
Unlike in Europe where bancassurance involves the bank creating insurance products, in Ireland many banks engage insurers to create product to be sold via banking network, call centre or online. Whitelabeling insurance products allow the bank and insurer to enter or exit the market. In developing a bancassurance product, fundamentals need to be in place for success. The regulatory environment also does not favour banks creating insurance products; hence, this method is suited to the Irish market based on market size and existing distribution channels.
Research limitations/implications
Based on a general review of the market, past and present, it does not take into account future developments of the banking sector which is subject to change post the EU banking crisis.
Practical implications
The paper establishes the current trend of banks entering the insurance market in Ireland.
Originality/value
Based on observation, general literature review and the current regulatory requirements to retail insurance in Ireland, the paper offers a perspective of market entry for a bank to sell insurance.
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Badi H. Baltagi, Georges Bresson and Jean-Michel Etienne
This chapter proposes semiparametric estimation of the relationship between growth rate of GDP per capita, growth rates of physical and human capital, labor as well as other…
Abstract
This chapter proposes semiparametric estimation of the relationship between growth rate of GDP per capita, growth rates of physical and human capital, labor as well as other covariates and common trends for a panel of 23 OECD countries observed over the period 1971–2015. The observed differentiated behaviors by country reveal strong heterogeneity. This is the motivation behind using a mixed fixed- and random coefficients model to estimate this relationship. In particular, this chapter uses a semiparametric specification with random intercepts and slopes coefficients. Motivated by Lee and Wand (2016), the authors estimate a mean field variational Bayes semiparametric model with random coefficients for this panel of countries. Results reveal nonparametric specifications for the common trends. The use of this flexible methodology may enrich the empirical growth literature underlining a large diversity of responses across variables and countries.