Reckless Lending Research Articles

Special issue on governance and accounting regulation

The accounting scandals that first erupted in 2001 caused a major upheaval. First, Enron’s collapse stunned the world. A shocking series of revelations of accounting irregularities by other major corporations in the USA followed, and this accounting ‘virus’ then metastasized into Europe (witness the Netherland’s Ahold and Italy’s Parmalat cases, for example) and then into Asia (Satyam). The gathering accounting storm of the early millennium pushed lawmakers into action, in the form of numerous regulatory reforms around the world, including the Sarbanes-Oxley Act. Weak corporate governance, lax regulation and gatekeepers that turned from the watchdogs they were supposed to be into lapdogs serving companies rather than their stakeholders were major culprits. As outrageous as these scandals were at the time, they pale in comparison with the financial horrors of today. The current global economic meltdown shines a harsh light on financial reporting systems that are opaque and on regulatory structures that are not up to the job, and which—along with reckless lending policies, cheap money greedily seeking high returns and impenetrable financial instruments—have caused untold suffering around the world. The regulatory impact of accounting standards occupies a prominent place among the causes of this financial unravelling. Consider for example the mark-to-market accounting rule and the chain of events it gave rise to. Indiscriminate application of the rule in the current, illiquid, almost nonexistent market has depressed equity

The Interrelationship Between Bank Failure and Political Interventions in Tanzania in the Pre-Liberalization Period

Over the years there has been an increase in the number of bank failures in both centralized and decentralized economies (Saunders, 1994; Williams, 1995; The Economist, 1992; European Bank of Reconstruction, 1993). Internal reasons given for the bank failures include reckless lending, corruption, non-use of prudent classification risk assessment methods, fraud and management deficiencies. External factors such as deregulation; lack of information among bank customers; homogeneity of the banking business, connections among banks do cause bank failure. For centrally planned economies government and political interference in the banking operations and policies also contribute to bank failure. Tanzania, which until recently was characterized by a centrally planned economy, and the government having majority (51%) share holding in parastatals and banks also experienced bank failure in form of non-performing assets (NPAs). In Tanzania, bank policies reflected government directives and policies as well as political motives. Due to the dual government ownership of the bank and the parastatals, bank lending policies, procedures and regulations favored parastatal firms and agricultural marketing boards. For example, at the end of 1998, out of 78% NBC loan portfolio the majority went to parastatals and cooperative unions, with only 3% going to private firms. The majority of parastatals and cooperative unions were frequent loss makers and financially distressed. For continued existence they had to depend on the government subvention, which proved to be a heavy burden to the government. As a result, when the parastatals were experiencing financial difficulties and unable to pay the bank loans, the government solved the problem by directing the National bank of Commerce (NBC), the only commercial bank, to offer loans to the troubled parastatals and cooperative unions. By 1991, due to increased lending to financial distressed parastatals and cooperative unions, the NBC suffered large non-performing loans (NPAs) equal to 70% of the total bank NPAs. Considering the high rate of NPAs suffered by NBC, this paper has tried to show that government and political interventions and the non-use of prudent credit scoring methods had contributed to the NBC failure. African Journal of Finance and Management Vol.9(1) 2000: 14-30

History of the London Discount Market.

Part 1 The rise of the bill brokers: growth of intermediaries brokers as agents for country banks bill broking in 1810 rates and the usury laws the origin of Overend, Gurney & Co. Samuel Gurney comes to London rapid spread of the bill broker system, 1810-25 widespread use of the domestic bill. Part 2 The 1825 crisis and its results: the beginnings of joint stock banking provincial joint stock bank re-discounts early joint stock bank call loans the bank of England branches effects upon country bank re-discounting discrimination against joint stock issuer's paper the end of London bank re-discounting. Part 3 Growth of central banking functions: early efforts at credit control the policy of a fixed and uniform bank rate the first open operations re-discount facilities for the bill market abuse of bill credit in the '30s advantages of the re-discounting system. Part 4 Consequences of the act of 1844 - the bank's policy: theory of the act of 1844 competitive discounting by the bank the principle of the minimum rate steady growth of the bill market the supremacy of Overend, Gurney long usances and their abuse bill market borrowing at the bank. Part 5 Consequences of the act of 1844 - the crisis of 1847: the railway bank's competition stimulates credit abuses reckless lending - and its sequel first suspension of the bank act was the bank to blame? bank's special power to influence rates bank act controversy obscures the real issues bank rate technique after 1847 an unconscious advance towards modern practice. Part 6 The bank and the market - withdrawal of re-discount facilities: rapid growth of trade and of banking expansion of the call loan system one-name re-discounts market call loans and reserve policy reliance upon the bank - an over-trading were the houses mis-judged? the crisis of 1857 the bank closes market discount accounts the practice of keeping strong houses versus the bank intimidation by Gurney's. Part 7 The rise of the companies: companies in the leather crisis boom in financial flotations the national's new capital the triumph of limited liability collapse of the corner house why did Gurney's fail? liquidation of Overend, Gurney & Co, Ltd. supremacy of the national companies from 1885 to 1913. Part 8 Growth of the international money market: the mania for foreign loans internationalization of commerce decline of the domestic bill the birth of the treasury bill foreign balances and sensitivity. Part 9 The moral supremacy of the bank of England: abandonment of the rule of following the market deposit allowances and excessive competition the private and personal rate of the bank of England bank's struggle for mastery - ineffectiveness of bank rate in the '80s the vigour of William Lidderdale the Baring crisis and after control regained - the effectiv