Changes in media and its effects on personal, social and work lives Essay

Changes in media and its consequences for individual, social and work lives - Essay Example Be that as it may, this came to change with the quick advancement of innovation. Before we knew it, we had TV, and this made a huge difference since we couldn't just hear the news yet could see who was introducing it just as recordings of the news itself. It has undoubtedly been a benefit for me to live long enough to see the advancement of media from its earliest stages to where it is today. Question: What are your emotions concerning the advancement of the Internet and long range interpersonal communication? Granddad: it is very captivating how the innovation for transmitting media has created and how quick that advancement has been. The things that we used to believe were outlandish have now become reality and this is something very phenomenal. The Internet is an innovation that I didn't get mindful of until at some point in the mid nineties when it was first acquainted with me. I saw it as most valuable since I could utilize email to send data, which I would have in any case sent via mail, and I could discover data in a split second on the web, without heading off to a library, as used to be the situation. I have come to adjust to this new innovation like a fish in water, since it has made my life all a lot simpler, particularly since I don't move around as much as I used to. I am an enthusiastic client of long range informal communication locales, for example, Facebook, where I have come to experience a lot of data just as made numerous companions. I have likewise had the option to revive former associations with individuals whom I knew when I was more youthful, however life put us in various ways. Besides, the various wellsprings of news have guaranteed that any one-sided news can be identified. I for one lean toward watching news on the web and during the Iraq War, as of late, I used to watch Al Jazeera and BBC to get a reasonable image of the news. Question: Which media do you think has figured out how to endure path into the cutting edge times? Grandda d: In my supposition, I accept that TV, and most particularly kid's shows, have not lost the appeal that kept individuals snared to them. At the point when I was youthful, I used to cherish the Disney kid's shows and I tailed them each possibility I got. I despite everything see a similar interest in kid's shows among kids today and this, I accept, is coherence. By and by, I am as yet an enormous fanatic of kid's shows since they help me to remember my more youthful days as well as make me snicker, something that I need to concede, has gotten very uncommon for me in different types of diversion. Question: What was the connection among lawmakers and media, and has this relationship changed? Granddad: In earlier decades, it was very hard to track down lawmakers who were unguarded with any type of media. Truth be told, media was constantly rewarded with doubt on account of the conviction that their primary reason for existing was to obliterate political vocations by making embarrassmen ts. This, I accept, has changed since numerous government officials have come to grasp the media to promote their own political professions. President Obama in the United States is a case of this new pattern among government officials. He has utilized the media so well that he has figured out how to keep up his fame where different presidents would have gone wrong. I may add that media has come to impact change in the public eye on the grounds that without it, the Americans would not have had the option to choose a dark president. Article Media has encountered a lot of changes, particularly from the mid twentieth century to the current day. It has not just prompted the improvement of better methods for correspondence between individuals however has

Primary Health Care †Indigenous Australian Inequalities Essay

Page 1 The World Health Organization (World Health Organization, 2008) states that the indigenous people groups of Australia are one of the most hindered indigenous gatherings in the created world. The wellbeing of the Indigenous populace of Australia is an inexorably squeezing issue. Ebb and flow research and insights uncovers incredible disparity in numerous territories of social insurance and wellbeing status between the Aboriginal individuals and everybody of Australia. Couzos and Murray (2008, p.29) report that the Indigenous populace has â€Å"the most noticeably terrible wellbeing status of any recognizable gathering in Australia, and the least fortunate access to wellbeing frameworks. † This paper will inspect the hidden recorded settings and contributing variables that have lead to the present difference between the soundness of the Indigenous Australians and non-Indigenous Australians. Moreover, the high commonness of interminable medical problems, for example, diabetes will be broke down and network wellbeing activities that are required or right now being instituted will be recognized. Numerous explanations behind the present shocking condition of wellbeing and prosperity of the Australian Aboriginal individuals can be clarified by analyzing their ongoing history to the overwhelming effects of colonization, destructive approach, loss of land and long stretches of mistreatment. These few hundred years of social decimation, dispossession and social and political change have brought about ages of injury and distress (Burke, 2006, para. 4). As revealed by Forsyth (2007, p.35-36), government arrangements sanctioned towards the indigenous populace in the mid twentieth Century were concerned essentially with insurance and isolation, as the overall mentality of the time was that the Indigenous individuals were to a great extent substandard and couldn't enjoy themselves. Forsyth keeps on clarifying of the unfairness made by the New South Wales parliament with the Aborigines Protection Act of 1909, in which â€Å"every part of their lives was administered, directed and controlled† (Forsyth, 2007, p. 36). Besides the Indigenous individuals of this time couldn't assimilate liquor, own property, cast a ballot or live together with non-Indigenous individuals, and the condition of their wellbeing was to a great extent overlooked because of the conviction that they were a withering race. (Couzos et. Page 2 al. 2008, p. 3). Because of this basically complete absence of human services, Forsyth depicts the Aboriginal individuals of the time living on the edges of bigger towns as experiencing high paces of visual deficiency, irresistible ailments, bone illnesses and explicitly transmitted diseases (Forsyth, 2007, p.36). The seriousness of these medical problems was exacerbated by dread and doubt of the Aboriginal individuals towards emergency clinics and white individuals (Forsyth, 2007, p. 37). As the twentieth Century advanced it became clear that the Aboriginal populace was not a destined to be wiped out race as before suspected, and new political arrangement calling for osmosis and reconciliation mirrored this change, however protectionist and segregationist strategies stayed persuasive or proceeded until the 1970s (Couzos et.al. 2008, p. 4). During the 1960s mentalities of Australian culture started to turned out to be progressively worried for the prosperity Indigenous individuals, with expanded social conciousness and mindfulness spreading all through the Western World. Because of expanding political action and exhibit, numerous Aboriginals were constrained off stations in 1966, making a huge development of Indigenous individuals progressively urban regions, for example, Redfern (Couzos et. al. 2008, p. 7). This abrupt increment in numbers featured the requirement for appropriate social insurance and administrations, with the principal Aboriginal wellbeing administration built up in 1971. All through the 1970s an expansion in research and detailing of Aboriginal wellbeing brought about many state and ward reports all with a similar end, that the wellbeing status of Aboriginal people group was horrifying and that there was extraordinary â€Å"need for expanded need, expanded resourcing, better coordination, and expanded Aboriginal people group investment and control† (Couzos et. al. 2008, p. 10). Anyway almost no move was made until the 1990s2000s where pertinent political arrangement was gotten and financing made accessible for Aboriginal wellbeing administrations, however they generally remain insufficiently supported and Aboriginal medicinal services is still to a great extent unrepresented and maintained a strategic distance from by the Australian Government. The progressing impacts of bigot and unfair political strategy and activity can to some extent clarify current parts of brokenness and by and large drawback that happens in numerous Indigenous Page 3 networks today. Explicitly this detriment is apparent in numerous zones of network life, with Indigenous individuals being commonly presented to more hazard factors for unexpected weakness than different Australians (Thomson, MacRae, Burns, Catto, Debuyst, Krom, Midford, Potter, Ride, Stumpers and Urquhart, 2010, para. 49). Instances of hazard factors incorporate social factors, for example, dispossession, disengagement and separation, instructive factors, for example, poor tutoring, bringing about much lower education and numeracy aptitudes, financial factors, for example, lower salary and higher joblessness, access to great quality medicinal services and GP’s, and physical ecological factors, for example, poor and stuffed lodging. Together these weaknesses accommodate a higher probability of poor way of life decisions, for example, liquor, tobacco and illegal medication use, a poor and lopsided eating routine, corpulence and an absence of ordinary exercise (Thomson et. al. 2010, para. 49, Couzos et. al. 2008, p. 79). Poor access to great quality human services is one of the key indicators for the commonness of unforeseen weakness in a network. There are not many GP’s accessible in remote areas, and because of no or little access to proficient human services suppliers, these remote zones are helpless to unexpected frailty mindfulness and information. As detailed by Thomson et. al. (2010, para. 3), just about one-fourth of Indigenous individuals are named living in a remote zone with next to no entrance to merchandise and ventures or open doors for social connection. Couzos et. al. (2008, p. 18) additionally consider poor access to GP’s as appeared by a 2000-2001 study of GP’s. As announced, just 0. 8% of GP visits were by Indigenous individuals, however they make up 2. 6% of everyone. Moreover, over 70% of GP’s didn't see a solitary Indigenous individual during the study time frame. This under portrayal of the Indigenous populace visiting GP’s shows an unmistakable requirement for expanded access to proficient medicinal services, and is only one factor of numerous which exhibits the requirement for development in the wellbeing and prosperity of the Australian Indigenous individuals. Page 4 Diabetes is an interminable metabolic condition which can bring about many major long haul wellbeing entanglements, for example, stroke, kidney malady, visual deficiency and incredibly decreased future (Allman, 2008, p. 80, Zeng, 2006, p. 73). Diabetes can be characterized into three primary sorts, with the subsequent kind, non-insulin-dependant diabetes mellitus (NIDDM) the principle structure created because of way of life factors. As detailed by Thomson et. al. (2010, para. 2), NIDDM is as of now â€Å"one of the most significant medical issues for Indigenous populaces across Australia†, with just around half of those with the condition realize they have it, and the extent of influenced Indigenous populace evaluated to associate with 4 four times that of everyone. Couzos et. al. (2008, p. 525) grow that Aboriginal individuals are likewise fundamentally bound to create NIDDM at an a lot more youthful age, bound to be hospitalized, and to bite the dust from related inconveniences. This over portrayal of diabetes in the Indigenous populace is an aftereffect of their unforeseen weakness status and instruction. Thomson et. al. (2010) report that numerous examinations have connected significant levels of weight among Indigenous populaces and high commonness of NIDDM. The principle factors connected to this significant levels of corpulence are the generally late accessibility of profoundly handled and sweet Western nourishments and beverages including liquor and tobacco use, impeded glucose tolerence, hypertriglyceridaemia, hypertension, hyperinsulinaemia and a more elevated level of physical latency than non-Indigenous individuals (Thomson et. al. 2010). Diabetes predominance is additionally connected to a lower financial status, and as recently analyzed, a high extent of the Indigenous populace experience the ill effects of numerous regions of hindrance, which brings about a lower financial status. As further clarified by Thomson et. al. (2010) these impacts are additionally irritated by unexpected weakness advancement and information, psychological instability and stress, early passionate turn of events and societal position, and ongoing patterns demonstrate expanding improvement and predominance of NIDDM. Unmistakably the Aboriginal populace is presented to many hazard factors for diabetes and other constant conditions, and with expanding improvement patterns, clarifies poor death rates and in general unexpected frailty status of their networks. Page 5. Network based projects are basic for the improvement of Indigenous wellbeing because of the affectionate idea of their way of life and frequently remote area. This was started in 2003 at national level with the advancement of The National Strategic Framework for Aboriginal and Torres Strait Islander Health, which focused fortifying of wellbeing administration foundation, availability to wellbeing administrations, and wellbeing advancement, in particular the significance of adjusted nourishment and customary exercise (Couzos et. al. 2008, p.522, Insel, Ross, McMahon and Bernstein, 2010, p. 653). Cribbes and Glaister (2007, p. 167) portray the significance of wellbeing advancement and mindfulness at the network level, with an emphasis on restoring increasingly customary food decisions and empowering conventional chasing abilities. The conventional Indigenous eating routine is profoundly nutritious, being high in protein, low in fat and high in com

When Sexting Becomes Addictive

When Sexting Becomes Addictive Addiction Addictive Behaviors Internet Print When Sexting Turns Into an Addiction By Elizabeth Hartney, BSc., MSc., MA, PhD Elizabeth Hartney, BSc, MSc, MA, PhD is a psychologist, professor, and Director of the Centre for Health Leadership and Research at Royal Roads University, Canada. Learn about our editorial policy Elizabeth Hartney, BSc., MSc., MA, PhD Updated on January 19, 2020 Hero Images / Getty Images More in Addiction Addictive Behaviors Internet Caffeine Shopping Sex Alcohol Use Drug Use Nicotine Use Coping and Recovery Sexting or  the act of sending sexually explicit material through text messages, often via mobile phones can be an addiction that destroys lives in much the same way other addictions do.?? Sexting  can include sexually explicit text messages, or they can include sexually explicit photographs, images, or videos. Sexting Trouble Areas Sexting is typically carried out deliberately, with people sending sexts about themselves. But sometimes, sext messages that contain sexually explicit material about someone else can be sent, in some cases when the subject of the sexts has not given consent. Sexts can also be sent to someone who does not wish to receive sexually explicit material. Because sexting is a recent phenomenon, it has not yet been adequately researched, and proper limits to sexting have not yet been worked out. However, many people have found themselves in trouble over sexually explicit sexts. One of the worst-case scenarios is when teenagers sext sexually explicit pictures of themselves and are subsequently accused of distribution of child pornography. Sex Addiction and Sexting Sexting can be a symptom or manifestation of sexual addiction, which is an illness like other addictions and causes destructive consequences.  For some, sexting is the primary behavior involved in sexual addiction.  For others, an all-consuming interest in pornography, sexual encounters with sex workers, pathological infidelity, or cybersex relationships can be the main focus of the addiction.   Sexual addiction is related to obsessive and compulsive thoughts and actions, and the inability to control behavior, even when the addiction is destroying family relationships, self-esteem, a career, and even finances.?? Similar to other addictions, sexual addiction is progressive in nature. This means that the person who suffers from sexual addiction will spend more and more time and energy engaging in the specific behaviors related to their addiction. In addition, sex addicts often seek more intense experiences as the addiction progresses in order to achieve the same high they once got from more benign activities. Who Is at Risk? With mobile devices making sexting constantly available, sexting addiction has become more widespread. In fact, some estimates suggest that online porn addiction and sexting comprise the most common subtype of internet addiction.?? However, certain people are more likely than others to develop a problem with sexting. These include people who suffer from low self-esteem, a distorted body image, untreated sexual dysfunction, or another type of sexual addiction.?? Treatment Treating a sexting addiction often requires support from professionals,?? and can be particularly complicated because refraining from the use of a mobile phone is not practical in todays environment. With that temptation always in hand, sext addicts must vigilant about relapsing. Because sexting and pornography addiction are becoming more and more common, many new inpatient and outpatient centers focusing on treating these disorders have become available in all parts of the world. In addition, a self-help support group program such as Sex Addicts Anonymous can be helpful in achieving and maintaining recovery.

Causes of the Latin American Revolution

As late as 1808, Spains New World Empire stretched from parts of the present-day western US to Tierra del Fuego in South America, from the Caribbean Sea to the Pacific Ocean. By 1825, it was all gone except for a handful of islands in the Caribbean—broken into several independent states. How could Spains New World Empire fall apart so quickly and completely? The answer is long and complicated, but here are some of the essential causes of the Latin American Revolution. Lack of Respect for the Creoles By the late eighteenth century, the Spanish colonies had a thriving class of Creoles (Criollo in Spanish), wealthy men and women of European ancestry born in the New World. The revolutionary hero Simon Bolivar is a good example, as he was born in Caracas to a well-to-do Creole family four generations of whom who had lived in Venezuela, but as a rule, did not intermarry with the locals. Spain discriminated against the Creoles, appointing mostly new Spanish immigrants to important positions in the colonial administration. In the audiencia (court) of Caracas, for example, no native Venezuelans were appointed from 1786 to 1810. During that time, ten Spaniards and four creoles from other areas did serve. This irritated the influential Creoles who correctly felt that they were being ignored. No Free Trade The vast Spanish New World Empire produced many goods, including coffee, cacao, textiles, wine, minerals and more. But the colonies were only allowed to trade with Spain, and at rates advantageous for Spanish merchants. Many Latin Americans began selling their goods illegally to the British colonies and after 1783, U.S. merchants. By the late 18th century, Spain was forced to loosen some trade restrictions, but the move was too little, too late as those who produced these goods now demanded a fair price for them. Other Revolutions By 1810, Spanish America could look to other nations to see revolutions and their results. Some were a positive influence: The American Revolution (1765–1783) was seen by many in South America as a good example of elite leaders of colonies throwing off European rule and replacing it with a more fair and democratic society—later, some constitutions of new republics borrowed heavily from the U.S. Constitution. Other revolutions were not as positive. The Haitian Revolution, a bloody but successful uprising of slaves against their French colonial owners (1791–1804), terrified landowners in the Caribbean and northern South America, and as the situation worsened in Spain, many feared that Spain could not protect them from a similar uprising. A Weakened Spain In 1788, Charles III of Spain, a competent ruler, died and his son Charles IV took over. Charles IV was weak and indecisive and mostly occupied himself with hunting, allowing his ministers to run the Empire. As an ally of Napoleons First French Empire, Spain willingly joined with Napoleonic France and began fighting the British. With a weak ruler and the Spanish military tied up, Spains presence in the New World decreased markedly and the Creoles felt more ignored than ever. After Spanish and French naval forces were crushed at the Battle of Trafalgar in 1805, Spains ability to control the colonies lessened even more. When Great Britain attacked Buenos Aires in 1806–1807, Spain could not defend the city and a local militia had to suffice. American Identities There was a growing sense in the colonies of being separate from Spain. These differences were cultural and often a source of great pride among Creole families and regions. By the end of the eighteenth century, the visiting Prussian scientist Alexander Von Humboldt (1769–1859) noted that the locals preferred to be called Americans rather than Spaniards. Meanwhile, Spanish officials and newcomers consistently treated creoles with disdain, maintaining and further widening the social gap between them. Racism While Spain was racially pure in the sense that the Moors, Jews, gypsies and other ethnic groups had been kicked out centuries before, the New World populations were a diverse mixture of Europeans, Indians and blacks brought in as slaves. The highly racist colonial society was extremely sensitive to minute percentages of black or Indian blood. A persons status in society could be determined by how many 64ths of Spanish heritage one had. To further muddle things up, Spanish law allowed wealthy people of mixed heritage to buy whiteness and thus rise in a society that did not want to see their status change. This caused resentment within the privileged classes. The dark side of the revolutions was that they were fought, in part, to maintain a racist status quo in the colonies freed of Spanish liberalism. Final Straw: Napoleon Invades Spain 1808 Tired of the waffling of Charles IV and Spains inconsistency as an ally, Napoleon invaded in 1808 and quickly conquered not only Spain but Portugal as well. He replaced Charles IV with his own brother,  Joseph Bonaparte. A Spain ruled by France was an outrage even for New World loyalists: Many men and women who would have otherwise supported the royalist side now joined the insurgents. Those who resisted Napoleon in Spain begged the colonials for help but refused to promise to reduce trade restrictions if they won. Rebellion The chaos in Spain provided a perfect excuse to rebel and yet not commit treason. Many Creoles said they were loyal to Spain, not Napoleon. In places like Argentina, colonies sort of declared independence, claiming they would only rule themselves until such time as Charles IV or his son Ferdinand was put back on the Spanish throne. This half-measure was much more palatable to those who did not want to declare independence outright. But in the end, there was no real going back from such a step. Argentina was the first to formally declare independence on July 9, 1816. The independence of Latin America from Spain was a foregone conclusion as soon as the creoles began thinking of themselves as Americans and the Spaniards as something different from them. By that time, Spain was between a rock and a hard place: The creoles clamored for positions of influence in the colonial bureaucracy and for freer trade. Spain granted neither, which caused great resentment and helped lead to independence. Even if Spain had agreed to these changes, they would have created a more powerful, wealthy colonial elite with experience in administering their home regions—a road that also would have led directly to independence. Some Spanish officials must have realized this and so the decision was taken to squeeze the utmost out of the colonial system before it collapsed. Of all of the factors listed above, the most important is probably  Napoleons invasion of Spain. Not only did it provide a massive distraction and tie up Spanish troops and ships, it pushed many undecided Creoles over the edge in favor of independence. By the time Spain was beginning to stabilize—Ferdinand reclaimed the throne in 1813—colonies in Mexico, Argentina, and northern South America were in revolt. Sources Lockhart, James, and Stuart B. Schwartz. Early Latin America: A History of Colonial Spanish America and Brazil. Cambridge: Cambridge University Press, 1983.Lynch, John.  Simà ³n Bolà ­var: A Life.  2006: Yale University Press.Scheina, Robert L.  Latin Americas Wars: The Age of the Caudillo, 1791–1899.  Washington: Brasseys, 2003.Selbin, Eric. Modern Latin American Revolutions, 2nd ed. New York: Routledge, 2018.

Epekto Ng Makabagong Teknolohiya Sa Mag-Aaral - 4355 Words

Home Publications Blogs Client Advisories Checklist of Routine Annual Activities To Be Completed By NYSE-Listed Companies February 19, 2010 This memorandum lists typical routine activities for a NYSE-listed company, its Board of Directors or its Audit, Compensation and Nominating/Governance Committee, especially in connection with the Annual Meeting of Stockholders. Please note that, in any particular situation, additional activities may need to be completed and not all of the activities mentioned apply to all situations, and that each company’s activities will depend on its governing documents. A NYSE-listed foreign private issuer or limited partnership, or a NYSE-listed company that is emerging from bankruptcy or a â€Å"controlled†¦show more content†¦Appoint Chairperson of the Board, if any (based on recommendation of Nominating/Governance Committee) Appoint Committee members (based on recommendation of Nominating/ Governance Committee) Schedules. Establish annual schedule for regular Board meetings Establish annual schedule for regular executive sessions of non management directors NYSE requirement to hold regular executive sessions of non management directors may be satisfied by holding regular executive sessions of only independent directors If regularly hold executive sessions of non-management directors (including non-independent directors), establish schedule for an executive session of only independent directors at least once annually Elections. If term of office expires annually, re-elect officers Elect new officers, if any Presiding Director. Designation by non-management directors of Presiding Director (based on recommendation of Nominating/Governance Committee) Ownership Guidelines. If necessary, approve stock ownership guidelines, as applicable, taking into account recommendations of Nominating/Governance Committee Nominating/Governance Committee Assessments. Conduct annual performance self-evaluation of Committee and lead annual self-assessment ofShow MoreRelatedEpekto Ng Makabagong Teknolohiya Partikular Na Ang Kompyuter Sa Mga Mag-Aaral Sa Ust-Amv-Coa Sa Ikaapat Na Antas Taong 2008-20091974 Words   |  8 PagesSa panahon ngayon, nagkalat ang iba’t ibang makabagong teknolohiya sa ating mundong patuloy na umuunlad. Isa sa mga teknolohiyang ito ay ang kompyuter. (ayon sa wikipedia) Ang kompyuter ay isang makina na ginagamit sa paggawa ng mga kalkulasyon o mga operasyon na maaaring gawin sa pamamagitan ng mga terminong numerikal o lohikal. Ito ay nakapaghahatid ng aliw, nakakapagpabilis ng gawain at nakakapagpayaman ng buhay ng tao sa pamamagitan ng mga karagdagang programa. Mayroong aspeto ang kompyuter naRead MoreAng Epekto Ng Teknolohiya Sa Pag-Uugali Ng Mga Mag-Aaral1584 Words   |  7 PagesANG EPEKTO NG TEKNOLOHIYA SA PAG-UUGALI NG MGA MAG-AARAL SA BARANGAY 68 SONA1, TUNDO, MAYNILA Ipinasa ni EMIL ALBERT V. 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Kaya walangalinlangan ang release ng mga ito at isang pirasong masayang balita para sa mga manlalarong laro. Gayun man ang paggamit ng PSP o tinatawag na poratable play station ay maari ding makaipikto sa mga gumagamit nito, maapiktuhan ang pag-aaral at pamumuhay ng isang tao. Ang pasksang ito ay mahalaga para malaman ng gumagamitRead MoreFilipino Thesis4803 Words   |  20 Pagesof Accounts, Business and Finance Epekto paggamit ng cellphone Sa Mga PilingMag-aaral Isang Proyekto Bilang Pangangailangan sa Filipino Ipinasa kay Professor Alicia  M. Cabrera Ipinasa nila Princess Mae Modesto Kim Atienza Talaan ng Nilalaman Kabatanata I Suliranin at Sandigan ng Pag-aaral Panimula †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 1-2 Batayang Teorya †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 2 Konseptwal na Balangkas ââ€"  Talahanayan Blg 1 †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 3 Paglalahad ng Suliranin †¦..†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.Read Moreâ€Å"the Effect of Study Habits on the Academic Performance of Freshmen Education Students in Xavier University, Cagayan de Oro City, School Year 2008-2009† Bilang Pagtupad Sa Isa Sa Mga Pangangailangan Ng Asignaturang1792 Words   |  8 PagesBilang pagtupad sa isa sa mga pangangailangan ng asignaturang Filipino 2, Pagbasa at Pagsulat tungo sa Pananaliksik, ang panahong – papel na ito na pinamagatang Mga Kadahilanan na Nakakaapekto sa Pag-aaral ng Estudyante sa Ikatlo at Ika-apat na Taon sa Unibersidad ng Perpetual Help System - Laguna ng Kolehiyo ng Occupational Therapy sa Ikalawang Semestre ng Taong - Akademiko 2010-2011 ay inihanda at iniharap ng mga mananaliksik mula sa kolehiyo ng Occupational Therapy na sina: Caabay, Ermar A. 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Financial Crises and Bank Liquidity Creation Allen N. Berger †  and Christa H. S. We will write a custom essay sample on Role of Computer in Daily Life or any similar topic only for you Order Now Bouwman †¡ October 2008 Financial crises and bank liquidity creation are often connected. We examine this connection from two perspectives. First, we examine the aggregate liquidity creation of banks before, during, and after five major financial crises in the U. S. from 1984:Q1 to 2008:Q1. We uncover numerous interesting patterns, such as a significant build-up or drop-off of â€Å"abnormal† liquidity creation before each crisis, where â€Å"abnormal† is defined relative to a time trend and seasonal factors. Banking and market-related crises differ in that banking crises were preceded by abnormal positive liquidity creation, while market-related crises were generally preceded by abnormal negative liquidity creation. Bank liquidity creation has both decreased and increased during crises, likely both exacerbating and ameliorating the effects of crises. Off-balance sheet guarantees such as loan commitments moved more than on-balance sheet assets such as mortgages and business lending during banking crises. Second, we examine the effect of pre-crisis bank capital ratios on the competitive positions and profitability of individual banks during and after each crisis. The evidence suggests that high capital served large banks well around banking crises – they improved their liquidity creation market share and profitability during these crises and were able to hold on to their improved performance afterwards. In addition, high-capital listed banks enjoyed significantly higher abnormal stock returns than low-capital listed banks during banking crises. These benefits did not hold or held to a lesser degree around marketrelated crises and in normal times. In contrast, high capital ratios appear to have helped small banks improve their liquidity creation market share during banking crises, market-related crises, and normal times alike, and the gains in market share were sustained afterwards. Their profitability improved during two crises and subsequent to virtually every crisis. Similar results were observed during normal times for small banks. †  University of South Carolina, Wharton Financial Institutions Center, and CentER – Tilburg University. Contact details: Moore School of Business, University of South Carolina, 1705 College Street, Columbia, SC 29208. Tel: 803-576-8440. Fax: 803-777-6876. E-mail: aberger@moore. sc. edu. †¡ Case Western Reserve University, and Wharton Financial Institutions Center. Contact details: Weatherhead School of Management, Case Western Reserve University, 10900 Euclid Avenue, 362 PBL, Cleveland, OH 44106. Tel. : 216-368-3688. Fax: 216-368-6249. E-mail: christa. bouwman@case. edu. Keywords: Financial Crises, Liquidity Creation, and Banking. JEL Classification: G28, and G21. The authors thank Asani Sarkar, Bob DeYoung, Peter Ritchken, Greg Udell, and participants at presentations at the Summer Research Conference 2008 in Finance at the ISB in Hyderabad, the International Monetary Fund, the University of Kansas’ Southwind Finance Conference, and Erasmus University for useful comments. Financial Crises and Bank Liquidity Creation 1. Introduction Over the past quarter century, the U. S. has experienced a number of financial crises. At the heart of these crises are often issues surrounding liquidity provision by the banking sector and financial markets (e. . , Acharya, Shin, and Yorulmazer 2007). For example, in the current subprime lending crisis, liquidity seems to have dried up as banks seem less willing to lend to individuals, firms, other banks, and capital market participants, and loan securitization appears to be significantly depressed. This behavior of banks is summarized by the Economist: â€Å"Although bankers are always stingier in a down turn, [†¦] lots of banks said they had also cut back lending because of a slide in their current or expected capital and liquidity. 1 The practical importance of liquidity during crises is buttressed by financial intermediation theory, which indicates that the creation of liquidity is an important reason why banks exist. 2 Early contributions argue that banks create liquidity by financing relatively illiquid assets such as business loans with relatively liquid liabilities such as transactions deposits (e. g. , Bryant 1980, Diamond and Dybvig 1983). More recent contributions suggest that banks also create liquidity off the balance sheet through loan commitments and similar claims to liquid funds (e. g. Holmstrom and Tirole 1998, Kashyap, Rajan, and Stein 2002). 3 The creation of liquidity makes banks fragile and susceptible to runs (e. g. , Diamond and Dybvig 1983, Chari and Jagannathan 1988), and such runs can lead to crises via contagion effects. Bank liquidity creation can al so have real effects, in particular if a financial crisis ruptures the creation of liquidity (e. g. , Dell’Ariccia, Detragiache, and Rajan 2008). 4 Exploring the relationship between financial crises and bank liquidity creation can thus yield potentially interesting economic insights and may have important policy implications. The goals of this paper are twofold. The first is to examine the aggregate liquidity creation of 1 â€Å"The credit crisis: Financial engine failure† – The Economist, February 7, 2008. According to the theory, another central role of banks in the economy is to transform credit risk (e. g. , Diamond 1984, Ramakrishnan and Thakor 1984, Boyd and Prescott 1986). Recently, Coval and Thakor (2005) theorize that banks may also arise in response to the behavior of irrational agents in financial markets. 3 James (1981) and Boot, Thakor, and Udell (1991) endogenize the loan commitment contract due to informational frictions. The loan commitment contract is subsequently used in Holmstrom and Tirole (1998) and Kashyap, Rajan, and Stein (2002) to show how banks can provide liquidity to borrowers. 4 Acharya and Pedersen (2005) show that liquidity risk also affects the expected returns on stocks. 2 1 banks around five financial crises in the U. S. over the past quarter century. 5 The crises include two banking crises (the credit crunch of the early 1990s and the subprime lending crisis of 2007 – ? and three crises that can be viewed as primarily market-related (the 1987 stock market crash, the Russian debt crisis plus the Long-Term Capital Management meltdown in 1998, and the bursting of the dot. com bubble plus the September 11 terrorist attack of the early 2000s). This examination is intended to shed light on whether there are any connections between financial crises and aggregate l iquidity creation, and whether these vary based on the nature of the crisis (i. e. , banking versus market-related crisis). A good nderstanding of the behavior of bank liquidity creation around financial crises is also important to shed light on whether banks create â€Å"too little† or â€Å"too much† liquidity, and whether bank behavior exacerbates or ameliorates the effects of crises. We document the empirical regularities related to these issues, so as to raise additional interesting questions for further empirical and theoretical examinations. The second goal is to study the effect of pre-crisis equity capital ratios on the competitive positions and profitability of individual banks around each crisis. Since bank capital affects liquidity creation (e. g. , Diamond and Rajan 2000, 2001, Berger and Bouwman forthcoming), it is likely that banks with different capital ratios behave differently during crises in terms of their liquidity creation responses. Specifically, we ask: are high-capital banks able to gain market share in terms of liquidity creation at the expense of low-capital banks during a crisis, and does such enhanced market share translate into higher profitability? If so, are the high-capital banks able to sustain their improved competitive positions after the financial crisis is over? The recent acquisitions of Countrywide, Bear Stearns, and Washington Mutual provide interesting case studies in this regard. All three firms ran low on capital and had to be bailed out by banks with stronger capital positions. Bank of America (Countrywide’s acquirer) and J. P. Morgan Chase (acquirer of Bear-Stearns and Washington Mutual’s banking operations) had capital ratios high enough to enable them to buy their rivals at a small fraction of what they were worth a year before, thereby gaining a potential competitive advantage. 6 The recent experience of IndyMac Bank provides 5 Studies on the behavior of banks around financial crises have typically focused on commercial and real estate lending (e. g. , Berger and Udell 1994, Hancock, Laing, and Wilcox 1995, Dell’Ariccia, Igan, and Laeven 2008). We focus on the more comprehensive notion of bank liquidity creation. 6 On Sunday, March 16, 2008, J. P. Morgan Chase agreed to pay $2 a share to buy all of Bear Stearns, less than onetenth of the firm’s share price on Friday and a small fraction of the $170 share price a year before. On March 24, 2008, it increased its bid to $10, and completed the transaction on May 30, 2008. On January 11, Bank of America announced it would pay $4 billion for Countrywide, after Countrywide’s market capitalization had plummeted 85% during the preceding 12 months. The transaction was completed on July 1, 2008. After a $16. 4 billion ten-day bank 2 another interesting example. The FDIC seized IndyMac Bank after it suffered substantive losses and depositors had started to run on the bank. The FDIC intends to sell the bank, preferably as a single entity but if that does not work, the bank will be sold off in pieces. Given the way the regulatory approval process for bank acquisitions works, it is likely that the acquirer(s) will have a strong capital base. 7 A financial crisis is a natural event to examine how capital affects the competitive positions of banks. During â€Å"normal† times, capital has many effects on the bank, some of which counteract each other, making it difficult to learn much. For example, capital helps the bank cope more effectively with risk,8 but it also reduces the value of the deposit insurance put option (Merton 1977). During a crisis, risks become elevated and the risk-absorption capacity of capital becomes paramount. Banks with high capital, which are better buffered against the shocks of the crisis, may thus gain a potential advantage. To examine the behavior of bank liquidity creation around financial crises, we calculate the amount of liquidity created by the banking sector using Berger and Bouwman’s (forthcoming) preferred liquidity creation measure. This measure takes into account the fact that banks create liquidity both on and off the balance sheet and is constructed using a three-step procedure. In the first step, all bank assets, liabilities, equity, and off-balance sheet activities are classified as liquid, semi-liquid, or illiquid. This is done based on the ease, cost, and time for customers to obtain liquid funds from the bank, and the ease, cost, and time for banks to dispose of their obligations in order to meet these liquidity demands. This classification process uses information on both product category and maturity for all activities other than loans; due to data limitations, loans are classified based solely on category (â€Å"cat†). Thus, residential mortgages are classified as more liquid than business loans regardless of maturity because it is generally easier to securitize and sell such mortgages than business loans. In the second step, weights are assigned to these activities. The weights are consistent with the theory in that maximum liquidity is created when illiquid assets (e. g. , business loans) are transformed into liquid liabilities (e. g. , transactions deposits) and maximum liquidity is destroyed when liquid assets (e. g. , treasuries) are transformed into illiquid liabilities â€Å"walk†, Washington Mutual was placed into the receivership of the FDIC on September 25, 2008. J. P. Morgan Chase purchased the banking business for $1. 9 billion and re-opened the bank the next day. On September 26, 2008, the holding company and its remaining subsidiary filed for bankruptcy. Washington Mutual, the sixth-largest bank in the U. S. before its collapse, is the largest bank failure in the U. S. financial history. 7 After peaking at $50. 11 on May 8, 2006, IndyMac’s shares lost 87% of their value in 2007 and another 95% in 2008. Its share price closed at $0. 28 on July 11, 2008, the day before it was seized by the FDIC. 8 There are numerous papers that argue that capital enhances the risk-absorption capacity of banks (e. g. , Bhattacharya and Thakor 1993, Repullo 2004, Von Thadden 2004). (e. g. , subordinated debt) or equity. In the third step, a â€Å"cat fat† liquidity creation measure is constructed, where â€Å"fat† refers to the inclusion of off-balance sheet activities. Although Berger and Bouwman construct four different liquidity creation measures, they indicate that â€Å"cat fat† is the preferred measure. They argue that to assess the amount of liquidity creation, the ability to securitize or sell a particular loan category is more important than the maturity of those loans, and the inclusion of off-balance sheet activities is critical. We apply the â€Å"cat fat† liquidity creation measure to quarterly data on virtually all U. S. commercial and credit card banks from 1984:Q1 to 2008:Q1. Our measurement of aggregate liquidity creation by banks allows us to examine the behavior of liquidity created prior to, during, and after each crisis. The popular press has provided anecdotal accounts of liquidity drying up during some financial crises as well as excessive liquidity provision at other times that led to credit expansion bubbles (e. g. , the subprime lending crisis). We attempt to give empirical content to these notions of â€Å"too little† and â€Å"too much† liquidity created by banks. Liquidity creation has quadrupled in real terms over the sample period and appears to have seasonal components (as documented below). Since no theories exist that explain the intertemporal behavior of liquidity creation, we take an essentially empirical approach to the problem and focus on how far liquidity creation lies above or below a time trend and seasonal factors. 10 That is, we focus on â€Å"abnormal† liquidity creation. The use of this measure rests on the supposition that some â€Å"normal† amount of liquidity creation exists, acknowledging that at any point in time, liquidity creation may be â€Å"too much† or â€Å"too little† in dollar terms. Our main results regarding the behavior of liquidity creation around financial crises are as follows. First, prior to financial crises, there seems to have been a significant build-up or drop-off of â€Å"abnormal† liquidity creation. Second, banking and market-related crises differ in two respects. The banking crises (the credit crunch of 1990-1992 and the current subprime lending crisis) were preceded by abnormal positive liquidity creation by banks, whereas the market-related crises were generally preceded by abnormal negative liquidity creation. In addition, the banking crises themselves seemed to change the trajectory of aggregate liquidity creation, while the market-related crises did not appear to do so. Third, 9 Their alternative measures include â€Å"cat nonfat,† â€Å"mat fat,† and â€Å"mat nonfat. † The â€Å"nonfat† measures exclude offbalance sheet activities, and the â€Å"mat† measures classify loans by maturity rather than by product category. 0 As alternative approaches, we use the dollar amount of liquidity creation per capita and liquidity creation divided by GDP and obtain similar results (see Section 4. 2). 4 liquidity creation has both decreased during crises (e. g. , the 1990-1992 credit crunch) and increased during cri ses (e. g. , the 1998 Russian debt crisis / LTCM bailout). Thus, liquidity creation likely both exacerbated and ameliorated the effects of crises. Fourth, off-balance sheet illiquid guarantees (primarily loan commitments) moved more than semi-liquid assets (primarily mortgages) and illiquid assets (primarily business loans) during banking crises. Fifth, the current subprime lending crisis was preceded by an unusually high positive abnormal amount of aggregate liquidity creation, possibly caused by lax lending standards that led banks to extend increasing amounts of credit and off-balance sheet guarantees. This suggests a possible dark side of bank liquidity creation. While financial fragility may be needed to induce banks to create liquidity (e. g. , Diamond and Rajan 2000, 2001), our analysis raises the intriguing possibility that the causality may also be reversed in the sense that too much liquidity creation may lead to financial fragility. We then turn to the second goal of the paper – examining whether banks’ pre-crisis capital ratios affect their competitive positions and profitability around financial crises. To examine the effect on a bank’s competitive position, we regress the change in its market share of liquidity creation – measured as the average market share of aggregate liquidity creation during the crisis (or over the eight quarters after the crisis) minus the average market share over the eight quarters before the crisis, expressed as a proportion of the bank’s average pre-crisis market share – on its average pre-crisis capital ratio and a set of control variables. 1 Since the analyses in the first half of the paper reveal a great deal of heterogeneity in crises, we run these regressions on a per-crisis basis, rather than pooling the data across crises. The control variables include bank size, bank risk, bank holding company membership, local market competition,12 and proxies for the economic circumstances in the local markets in which the bank operates. Moreover, we examine large and small banks as two separate groups since the results in Berger and Bouwman (forthcoming) indicate that the effect of capital on liquidity creation differs across large and small banks. 13 11 Defining market share this way is a departure from previous research (e. g. , Laeven and Levine 2007), in which market share relates to the bank’s weighted-average local market share of total deposits. 12 While our focus is on the change in banks’ competitive positions measured in terms of their aggregate liquidity creation market shares, we control for â€Å"local market competition† measured as the bank-level Herfindahl index based on local market deposit market shares. 13 Berger and Bouwman use three size categories: large, medium, and small banks. We combine the large and medium bank categories into one â€Å"large bank† category. 5 One potential concern is that differences in bank capital ratios may simply reflect differences in bank risk. Banks that hold higher capital ratios because their investment portfolios are riskier may not improve their competitive positions around financial crises. Our empirical design takes this into account. The inclusion of bank risk as a control variable is critical and ensures that the measured effect of capital on a bank’s market share is net of the effect of risk. We find evidence that high-capital large banks improved their market share of liquidity creation during the two banking crises, but not during the market-related crises. After the credit crunch of the early 1990s, high-capital large banks held on to their improved competitive positions. Since the current subprime lending crisis was not over at the end of the sample period, we cannot yet tell whether highcapital large banks will also hold on to their improved competitive positions after this crisis. In contrast to the large banks, high-capital small banks seemed to enhance their competitive positions during all crises and held on to their improved competitive positions after the crises as well. Next, we focus on the effect of pre-crisis bank capital on the profitability of the bank around each crisis. We run regressions that are similar to the ones described above with the change in return on equity (ROE) as the dependent variable. We find that high-capital large banks improved their ROE in those cases in which they enhanced their liquidity creation market share – the two banking crises – and were able to hold on to their improved profitability after the credit crunch. profitability after the market-related crises. They also increased their In contrast, for high-capital small banks, profitability improved during two crises, and subsequent to virtually every crisis. As an additional analysis, we examine whether the improved competitive positions and profitability of high-capital banks translated into better stock return performance. To perform this analysis, we focus on listed banks and bank holding companies (BHCs). If multiple banks are part of the same listed BHC, their financial statements are added together to create pro-forma financial statements of the BHC. The results confirm the earlier change in performance findings of large banks: listed banks with high capital ratios enjoyed significantly larger abnormal returns than banks with low capital ratios during banking crises, but not during market-related crises. Our results are based on a five-factor asset pricing model that includes the three Fama-French (1993) factors, momentum, and a proxy for the slope of the yield curve. 6 We also check whether high capital provided similar advantages outside crisis periods, i. e. , during â€Å"normal† times. We find that large banks with high capital ratios did not enjoy either market share or profitability gains over the other large banks, whereas for small banks, results are similar to the smallbank findings discussed above. Moreover, outside banking crises, high capital was not associated with high stock returns. Combined, the results suggest that high capital ratios serve large banks well, particularly around banking crises. In contrast, high capital ratios appear to help small banks around banking crises, marketrelated crises, and normal times alike. The remainder of this paper is organized as follows. Section 2 discusses the related literature. Section 3 explains the liquidity creation measures and our sample based on data of U. S. banks from 1984:Q1 to 2008:Q1. Section 4 describes the behavior of aggregate bank liquidity creation around five financial crises and draws some general conclusions. Section 5 discusses the tests of the effects of precrisis capital ratios on banks’ competitive positions and profitability around financial crises and â€Å"normal† times. This section also examines the stock returns of high- and low-capital listed banking organizations during each crisis and during normal† times. Section 6 concludes. 2. Related literature This paper is related to two literatures. The first is the literature on financial crises. 14 One strand in this literature has focused on financial crises and fragility. Some papers have analyzed contagion. Contributions in this area suggest that a small liquidity shock in one area may have a contagious effect through out the economy (e. g. , Allen and Gale 1998, 2000). Other papers have focused on the determinants of financial crises and the policy implications (e. g. Bordo, Eichengreen, Klingebiel, and Martinez-Peria 2001, Demirguc-Kunt, Detragiache, and Gupta 2006, Lorenzoni 2008, Claessens, Klingebiel, and Laeven forthcoming). A second strand examines the effect of financial crises on the real sector (e. g. , Friedman and Schwarz 1963, Bernanke 1983, Bernanke and Gertler 1989, Dell’Ariccia, Detragiache, and Rajan 2008, Shin forthcoming). These papers find that financial crises increase the cost of financing and reduce credit, which adversely affects corporate investment and may lead to reduced 14 Allen and Gale (2007) provide a detailed overview of the causes and consequences of financial crises. 7 growth and recessions. That is, financial crises have independent real effects (see Dell’Ariccia, Detragiache, and Rajan 2008). In contrast to these papers, we examine how the amount of liquidity created by the banking sector behaved around financial crises in the U. S. , and explore systematic patterns in the data. The second literature to which this paper is related focuses on the strategic use of leverage in product-market competition for non-financial firms (e. g. , Brander and Lewis 1986, Campello 2006, Lyandres 2006). This literature suggests that financial leverage can affect competitive dynamics. While this literature has not focused on banks, we analyze the effects of crises on the competitive positioning and profitability of banks based on their pre-crisis capital ratios. Our hypothesis is that in the case of banks, the competitive implications of capital are likely to be most pronounced during a crisis when a bank’s capitalization has a major influence on its ability to survive the crisis, particularly in light of regulatory discretion in closing banks or otherwise resolving problem institutions. Liquidity creation may be a channel through which this competitive advantage is gained or lost. 15 3. Description of the liquidity creation measure and sample We calculate the dollar amount of liquidity created by the banking sector using Berger and Bouwman’s (forthcoming) preferred â€Å"cat fat† liquidity creation measure. In this section, we explain briefly what this acronym stands for and how we construct this measure. 16 We then describe our sample. All financial values are expressed in real 2007:Q4 dollars using the implicit GDP price deflator. 3. 1. Liquidity creation measure To construct a measure of liquidity creation, we follow Berger and Bouwman’s three-step procedure (see Table 1). Below, we briefly discuss these three steps. In Step 1, we classify all bank activities (assets, liabilities, equity, and off-balance sheet activities) as liquid, semi-liquid, or illiquid. For assets, we do this based on the ease, cost, and time for banks to dispose of their obligations in order to meet these liquidity demands. For liabilities and equity, we do this 15 Allen and Gale (2004) analyze how competition affects financial stability. We reverse the causality and examine the effect of financial crises on competition. 6 For a more detailed discussion, see Berger and Bouwman (forthcoming). 8 based on the ease, cost, and time for customers to obtain liquid funds from the bank. We follow a similar approach for off-balance sheet activities, classifying them based on functionally similar on-balance sheet activities. For all activities other than loans, this classi fication process uses information on both product category and maturity. Due to data restrictions, we classify loans entirely by category (â€Å"cat†). 17 In Step 2, we assign weights to all the bank activities classified in Step 1. The weights are consistent with liquidity creation theory, which argues that banks create liquidity on the balance sheet when they transform illiquid assets into liquid liabilities. We therefore apply positive weights to illiquid assets and liquid liabilities. Following similar logic, we apply negative weights to liquid assets and illiquid liabilities and equity, since banks destroy liquidity when they use illiquid liabilities to finance liquid assets. We use weights of ? and -? , because only half of the total amount of liquidity created is attributable to the source or use of funds alone. For example, when $1 of liquid liabilities is used to finance $1 in illiquid assets, liquidity creation equals ? * $1 + ? * $1 = $1. In this case, maximum liquidity is created. However, when $1 of liquid liabilities is used to finance $1 in liquid assets, liquidity creation equals ? * $1 + -? * $1 = $0. In this case, no liquidity is created as the bank holds items of approximately the same liquidity as those it gives to the nonbank public. Maximum liquidity is destroyed when $1 of illiquid liabilities or equity is used to finance $1 of liquid assets. In this case, liquidity creation equals -? $1 + -? * $1 = -$1. An intermediate weight of 0 is applied to semi-liquid assets and liabilities. Weights for off-balance sheet activities are assigned using the same principles. In Step 3, we combine the activities as classified in Step 1 and as weighted in Step 2 to construct Berger and Bouwman’s preferred â€Å"cat fat† liquidity creation measure. This measure classifies loans b y category (â€Å"cat†), while all activities other than loans are classified using information on product category and maturity, and includes off-balance sheet activities (â€Å"fat†). Berger and Bouwman construct four liquidity creation measures by alternatively classifying loans by category or maturity, and by alternatively including or excluding off-balance sheet activities. However, they argue that â€Å"cat fat† is the preferred measure since for liquidity creation, banks’ ability to securitize or sell loans is more important than loan maturity, and banks do create liquidity both on the balance sheet and off the balance sheet. 17 Alternatively, we could classify loans by maturity (â€Å"mat†). However, Berger and Bouwman argue that it is preferable to classify them by category since for loans, the ability to securitize or sell is more important than their maturity. 9 To obtain the dollar amount of liquidity creation at a particular bank, we multiply the weights of ? , -? , or 0, respectively, times the dollar amounts of the corresponding bank activities and add the weighted dollar amounts. 3. 2. Sample description We include virtually all commercial and credit card banks in the U. S. in our study. 18 For each bank, we obtain quarterly Call Report data from 1984:Q1 to 2008:Q1. We keep a bank if it: 1) has commercial real estate or commercial and industrial loans outstanding; 2) has deposits; 3) has an equity capital ratio of at least 1%; 4) has gross total assets or GTA (total assets plus allowance for loan and lease losses and the allocated transfer risk reserve) exceeding $25 million. We end up with data on 18,134 distinct banks, yielding 907,159 bank-quarter observations over our sample period. For each bank, we calculate the dollar amount of liquidity creation using the process described in Section 3. 1. The amount of liquidity creation and all other financial values are put into real 2007:Q4 dollars using the implicit GDP price deflator. When we explore aggregate bank liquidity creation around financial crises, we focus on the real dollar amount of liquidity creation by the banking sector. To obtain this, we aggregate the liquidity created by all banks in each quarter and end up with a sample that contains 97 inflation-adjusted, quarterly liquidity creation amounts. In contrast, when we examine how capital affects the competitive positions of banks, we focus on the amount of liquidity created by individual banks around each crisis. Given documented differences between large and small banks in terms of portfolio composition (e. g. , Kashyap, Rajan, and Stein 2002, Berger, Miller, Petersen, Rajan, and Stein 2005) and the effect of capital on liquidity creation (Berger and Bouwman forthcoming), we split the sample into large banks (between 330 and 477 observations, depending on the crisis) and small banks (between 5556 and 6343 observations, depending on the crisis), and run all change in market share and profitability regressions separately for these two sets of banks. Large banks have gross total assets (GTA) exceeding $1 billion at the end of the quarter before a crisis 18 Berger and Bouwman (forthcoming) include only commercial banks. We also include credit card banks to avoid an artificial $0. 19 trillion drop in bank liquidity creation in the fourth quarter of 2006 when Citibank N. A. moved its credit-card lines to Citibank South Dakota N. A. , a credit card bank. 10 and small banks have GTA up to $1 billion at the end of that quarter. 19,20 4. The behavior of aggregate bank liquidity creation around financial crises This section focuses on the first goal of the paper – examining the aggregate liquidity creation of banks across five financial crises in the U. S. over the past quarter century. The crises include the 1987 stock market crash, the credit crunch of the early 1990s, the Russian debt crisis plus Long-Term Capital Management (LTCM) bailout of 1998, the bursting of the dot. com bubble and the Sept. 11 terrorist attacks of the early 2000s, and the current subprime lending crisis. We first provide summary statistics and explain our empirical approach. We then discuss alternative measures of abnormal liquidity creation. Next, we describe the behavior of bank liquidity creation before, during, and after each crisis. Finally, we draw some general conclusions from these results. 4. 1. Summary statistics and empirical approach Figure 1 Panel A shows the dollar amount of liquidity created by the banking sector, calculated using the â€Å"cat fat† liquidity creation measure over our sample period. As shown, liquidity creation has increased substantially over time: it has more than quadrupled from $1. 369 trillion in 1984:Q1 to $5. 06 trillion in 2008:Q1 (in real 2007:Q4 dollars). We want to examine whether liquidity creation by the banking sector is â€Å"high,† â€Å"low,† or at a â€Å"normal† level around financial crises. Since no theories exist that explain the intertemporal behavior of liquidity creation or generate numerical estimates of â€Å"normal† liquidity creation, we need a reasonable empi rical approach. At first blush, it may seem that we could simply calculate the average amount of bank liquidity creation over the entire sample period and view amounts above this sample average as â€Å"high† and amounts below the average as â€Å"low. However, Figure 1 Panel A clearly shows that this approach would cause us to classify the entire second half of the sample period (1996:Q1 – 2008:Q1) as â€Å"high† and the entire first half of the sample period (1984:Q1 – 1995:Q4) as â€Å"low. † We therefore do not 19 As noted before, we combine Berger and Bouwman’s large and medium bank categories into one â€Å"large bank† category. Recall that all financial values are expressed in real 2007:Q4 dollars. 20 GTA equals total assets plus the allowance for loan and lease losses and the allocated transfer risk reserve. Total assets on Call Reports deduct these two reserves, which are held to cover potential credit losses. We add these reserves back to measure the full value of the loans financed and the liquidity created by the bank on the asset side. 11 use this approach. The approach we take is aimed at calculating the â€Å"abnormal† amount of liquidity created by the banking sector based on a time trend. It focuses on whether liquidity creation lies above or below this time trend, and also deseasonalizes the data to ensure that we do not base our conclusions on mere seasonal effects. We detrend and deseasonalize the data by regressing the dollar amount of liquidity creation on a time index and three quarterly dummies. The residuals from this regression measure the â€Å"abnormal† dollar amount of liquidity creation in a particular quarter. That is, they measure how far (deseasonalized) liquidity creation lies above or below the trend line. If abnormal liquidity creation is greater than (smaller than) $0, the dollar amount of liquidity created by the banking sector lies above (below) the time trend. If abnormal liquidity creation is high (low) relative to the time trend and seasonal factors, we will interpret this as liquidity creation being â€Å"too high† (â€Å"too low†). Figure 1 Panel B shows abnormal liquidity creation over time. The amount of liquidity created by the banking sector was high (yet declining) in the mid-1980s, low in the mid-1990s, and high (and mostly rising) in the most recent years. 4. 2. Alternative measures of abnormal liquidity creation We considered several alternative approaches to measuring abnormal liquidity creation. One possibility is to scale the dollar amount of liquidity creation by total population. The idea behind this approach is that a â€Å"normal† amount of liquidity creation may exist in per capita terms. The average amount of liquidity creation per capita over our sample period could potentially serve as the â€Å"normal† amount and deviations from this average would be viewed as abnormal. To calculate per capita liquidity creation we obtain annual U. S. population estimates from the U. S. Census Bureau. Figure 2 Panel A shows per capita liquidity creation over time. The picture reveals that per capita liquidity creation more than tripled from $5. 8K in 1984:Q1 to $18. 8K in 2008:Q1. Interestingly, the picture looks very similar to the one shown in Panel A, perhaps because the annual U. S. population growth rate is low. For reasons similar to those in our earlier analysis, we calculate abnormal per capita liquidity creation by detrending and deseasonalizing the data like we did in the previous section. Figure 2 Panel B shows abnormal per capita liquidity creation over time. 12 Another possibility is to scale the dollar amount of liquidity creation by GDP. Since liquidity creation by banks may causally affect GDP, this approach seems less appropriate. Nonetheless, we show the results for completeness. Figure 2 Panel C shows the dollar amount of liquidity creation divided by GDP. The picture reveals that bank liquidity creation has increased from 19. 9% of GDP in 1984:Q1 to 40. 4% of GDP in 2008:Q1. While liquidity creation more than quadrupled over the sample period, GDP doubled. Importantly, the picture looks similar to the one shown in Panel A. Again, for reasons similar to those in our earlier analysis, we detrend and deseasonalize the data to obtain abnormal liquidity creation divided by GDP. Figure 2 Panel D shows abnormal liquidity creation divided by GDP over time. Since these alternative approaches yield results that are similar to those shown in Section 4. 1, we focus our discussions on the abnormal amount of liquidity creation (rather than the abnormal amount of per capita liquidity creation or the abnormal amount of liquidity creation divided by GDP) around financial crises. 4. 3. Abnormal bank liquidity creation before, during, and after five financial crises We now examine how abnormal bank liquidity creation behaved efore, during, and after five financial crises. In all cases, the pre-crisis and post-crisis periods are defined to be eight quarters long. 21 The one exception is that we do not examine abnormal bank liquidity creation after the current subprime lending crisis, since this crisis was still ongoing at the end of the sample period. Figure 3 Panels A – E show the graphs of the abnormal amount of liquidity creation for the five crises. This subsec tion is a fact-finding effort and largely descriptive. In Section 4. , we will combine the evidence gathered here and interpret it to draw some general conclusions. Financial crisis #1: Stock market crash (1987:Q4) On Monday, October 19, 1987, the stock market crashed, with the SP500 index falling about 20%. During the years before the crash, the level of the stock market had increased dramatically, causing some 21 As a result of our choice of two-year pre-crisis and post-crisis periods, the post-Russian debt crisis period overlaps with the bursting of the dot. com bubble, and the pre-dot. com bubble period overlaps with the Russian debt crisis. For these two crises, we redo our analyses using six-quarter pre-crisis and post-crisis periods and obtain results that are qualitatively similar to the ones documented here. 13 concern that the market had become overvalued. 22 A few days before the crash, two events occurred that may have helped precipitate the crash: 1) legislation was enacted to eliminate certain tax benefits associated with financing mergers; and 2) information was released that the trade deficit was above expectations. Both events seemed to have added to the selling pressure and a record trading volume on Oct. 9, in part caused by program trading, overwhelmed many systems. Figure 3 Panel A shows abnormal bank liquidity creation before, during, and after the stock market crash. Although this financial crisis seems to have originated in the stock market rather than the banking system, it is clear from the graph that abnormal liquidity creation by banks was high ($0. 5 trillion above the time trend) two years befor e the crisis. It had already dropped substantially before the crisis and continued to drop until well after the crisis, but was still above the time trend even a year after the crisis. Financial crisis #2: Credit crunch (1990:Q1 – 1992:Q4) During the first three years of the 1990s, bank commercial and industrial lending declined in real terms, particularly for small banks and for small loans (see Berger, Kashyap, and Scalise 1995, Table 8, for details). The ascribed causes of the credit crunch include a fall in bank capital from the loan loss experiences of the late 1980s (e. g. , Peek and Rosengren 1995), the increases in bank leverage requirements and implementation of Basel I risk-based capital standards during this time period (e. g. Berger and Udell 1994, Hancock, Laing, and Wilcox 1995, Thakor 1996), an increase in supervisory toughness evidenced in worse examination ratings for a given bank condition (e. g. , Berger, Kyle, and Scalise 2001), and reduced loan demand because of macroeconomic and regional recessions (e. g. , Bernanke and Lown 1991). To some extent, the research supports virtually all of these hypotheses. Figure 3 Panel B shows how abnorm al liquidity creation behaved before, during, and after the credit crunch. The graph shows that liquidity creation was above the time trend before the crisis, but declining. After a temporary increase, it dropped markedly during the crisis by roughly $0. 6 trillion, and the decline even extended a bit beyond the crunch period. After having reached a noticeably low level in the post-crunch period, liquidity creation slowly started to bottom out. This evidence suggests that the 22 E. g. , â€Å"Raging bull, stock market’s surge is puzzling investors: When will it end? † on page 1 of the Wall Street Journal, Jan. 19, 1987. 14 banking sector created (slightly) positive abnormal liquidity before the crisis, but created significantly negative abnormal liquidity during and fter the crisis, representing behavior by banks that may have further fueled the crisis. Financial crisis #3: Russian debt crisis / LTCM bailout (1998:Q3 – 1998:Q4) Since its inception in March 1994, hedge fund Long-Term Capital Management (â€Å"LTCM†) followed an arbitrage strategy that was avowedly â€Å"market neutral,† designed to make money regardless of whether prices were rising or falling. When Russia defaulted on its sovereign debt on August 17, 1998, investors fled from other government paper to the safe haven of U. S. treasuries. This flight to liquidity caused an unexpected widening of spreads on supposedly low-risk portfolios. By the end of August 1998, LTCM’s capital had dropped to $2. 3 billion, less than 50% of its December 1997 value, with assets standing at $126 billion. In the first three weeks of September, LTCM’s capital dropped further to $600 million without shrinking the portfolio. Banks began to doubt its ability to meet margin calls. To prevent a potential systemic meltdown triggered by the collapse of the world’s largest hedge fund, the Federal Reserve Bank of New York organized a $3. billion bail-out by LTCM’s major creditors on September 23, 1998. In 1998:Q4, many large banks had to take substantial write-offs as a result of losses on their investments. Figure 3 Panel C shows abnormal liquidity creation around the Russian debt crisis and LTCM bailout. The pattern shown in the graph is very different from the ones we have seen so far. Liquidity creation was abnorma lly negative before the crisis, but increasing. Liquidity creation increased further during the crisis, countercyclical behavior by banks that may have alleviated the crisis, and continued to grow after the crisis. This suggests that liquidity creation may have been too low entering the crisis and returned to normal levels a few quarters after the end of the crisis. Financial crisis #4: Bursting of the dot. com bubble and Sept. 11 terrorist attack (2000:Q2 – 2002:Q3) The dot. com bubble was a speculative stock price bubble that was built up during the mid to late 1990s. During this period, many internet-based companies, commonly referred to as â€Å"dot. coms,† were founded. Rapidly increasing stock prices and widely available venture capital created an environment in which 15 any of these companies seemed to focus largely on increasing market share. At the height of the boom, it seemed possible for dot. com’s to go public and raise substantial amounts of money even if they had never earned any profits, and in some cases had not even earned any revenues. On March 10, 2000, the Nasdaq composite index peaked at more than double its value just a year before. After the bursting of the bubble, many dot. com’s ran out of capital and were acquired or filed for bankruptcy (examples of the latter include WorldCom and Pets. com). The U. S. economy started to slow down and business nvestments began falling. The September 11, 2001 terrorist attacks may have exacerbated the stock market downturn by adversely affecting investor sentiment. By 2002:Q3, the Nasdaq index had fallen by 78%, wiping out $5 trillion in market value of mostly technology firms. Figure 3 Panel D shows how abnormal liquidity creation behaved before, during, and after the bursting of the dot. com bubble and the Sept. 11 terrorist attacks. The graph shows that before the crisis period, liquidity creation moved from displaying a negative abnormal value to displaying a positive abnormal value at the time the bubble burst. During the crisis, liquidity creation declined somewhat and hovered around the time trend by the time the crisis was over. After the crisis, liquidity creation slowly started to pick up again. Financial crisis #5: Subprime lending crisis (2007:Q3 – ? ) The subprime lending crisis has been characterized by turmoil in financial markets as banks have experienced difficulty in selling loans in the syndicated loan market and in securitizing loans. Banks also seem to be reluctant to provide credit: they appear to have cut back their lending to firms and individuals, and have also been reticent to lend to each other. Risk premia have increased as evidenced by a higher premium over treasuries for mortgages and other bank products. Some banks have experienced massive losses in capital. For example, Citicorp had to raise about $40 billion in equity to cover subprime lending and other losses. Massive losses at Countrywide resulted in a takeover by Bank of America. Bear Stearns suffered a fatal loss in confidence and was sold at a fire-sale price to J. P. Morgan Chase with the Federal Reserve guaranteeing $29 billion in potential losses. Washington Mutual, the sixth-largest bank, became the biggest bank failure in the U. S. financial history. J. P. Morgan Chase purchased the banking business while the rest of the organization filed for bankruptcy. The Federal Reserve intervened in some 16 unprecedented ways in the market, extending its safety-net privileges to investment banks. In addition to lowering the discount rate sharply, it also began holding mortgage-backed securities and lending directly to investment banks. Subsequently, IndyMac Bank was seized by the FDIC after it suffered substantive losses and depositors had started to run on the bank. This failure is expected to cost the FDIC $4 billion – $8 billion. The FDIC intends to sell the bank. Congress also recently passed legislation to provide Freddie Mac and Fannie Mae with unlimited credit lines and possible equity injections to prop up these troubled organizations, which are considered too big to fail. Figure 3 Panel E shows abnormal liquidity creation before and during the first part of the subprime lending crisis. The graph suggests that liquidity creation displayed a high positive abnormal value that was increasing before the crisis hit, with abnormal liquidity creation around $0. 0 trillion entering the crisis, decreasing substantially after the crisis hit. A striking fact about this crisis compared to the other crises is the relatively high build-up of positive abnormal liquidity creation prior to the crisis. 4. 4. Behavior of some liquidity creation components around the two banking crises It is of particular interest to examine the behavior of some selected components of liquidity creation around the banking crises. As discuss ed above (Section 4. 3), numerous papers have focused on the credit crunch, examining lending behavior. These studies generally find that mortgage and business lending started to decline significantly during the crisis. Here we contrast the credit crunch experience with the current subprime lending crisis, and expand the components of liquidity creation that are examined. Rather than focusing on mortgages and business loans, we examine the two liquidity creation components that include these items – semi-liquid assets (primarily mortgages) and illiquid assets (primarily business loans). In addition, we analyze two other components of liquidity creation. We examine the behavior of liquid assets to address whether a decrease (increase) in semi-liquid assets and / or illiquid assets tended to be accompanied by an increase (decrease) in liquid assets. We also analyze the behavior of illiquid off-balance sheet guarantees (primarily loan commitments) to address whether illiquid assets and illiquid off-balance sheet guarantees move in tandem around banking crises and whether changes in one are more pronounced than the other. Figure 4 Panels A and B show the abnormal amount of four liquidity creation components around 17 he credit crunch and the subprime lending crisis, respectively. For ease of comparison, the components are not weighted by weights of +? (illiquid assets and illiquid off-balance sheet guarantees), 0 (semiliquid assets), and –? (liquid assets). The abnormal amounts are obtained by detrending and deseasonalizing each liquidity creation component. Figure 4 Panel A shows that abnormal semi-liquid assets decreased slight ly during the credit crunch, while abnormal illiquid assets and especially abnormal illiquid guarantees dropped significantly and turned negative. This picture suggests that these components fell increasingly below the trendline. The dramatic drop in abnormal illiquid assets and abnormal illiquid off-balance sheet guarantees (which carry positive weights) helps explain the significant decrease in abnormal liquidity creation during the credit crunch shown in Figure 3 Panel B. Figure 4 Panel B shows that these four components of abnormal liquidity creation were above the trendline before and during the subprime lending crisis. Illiquid assets and especially off-balance sheet guarantees move further and further above the trendline before the crisis, which helps explain the dramatic buildup in abnormal liquidity creation before the subprime lending crisis shown in Figure 3 Panel E. All four components of abnormal liquidity creation continued to increase at the beginning of the crisis. After the first quarter of the crisis, illiquid off-balance sheet guarantees showed a significant decrease, which helps explain the decrease in abnormal liquidity creation in Figure 3 Panel E. On the balance sheet, during the final quarter of the sample period (the third quarter of the crisis), abnormal semi-liquid and illiquid assets declined, while abnormal liquid assets increased. 4. 5. General conclusions from the results What do we learn from the various graphs in the previous analyses that indicate intertemporal patterns of liquidity creation and selected liquidity creation components around five financial crises? First, across all the financial crises, there seems to have been a significant build-up or drop-off of abnormal liquidity creation before the crisis. This is consistent with the notion that crises may be preceded by either â€Å"too much† or â€Å"too little† liquidity creation, although at this stage we offer this as tentative food for thought rather than as a conclusion. Second, there seem to be two main differences between banking crises and market-related crises. 18 The banking crises, namely the credit crunch and the subprime lending crisis, were both preceded by positive abnormal liquidity creation by banks, while two out of the three market-related crises were preceded by negative abnormal liquidity creation. In addition, during the two banking crises, the crises themselves seem to have exerted a noticeable influence on the pattern of aggregate liquidity creation by banks. Just prior to the credit crunch, abnormal liquidity creation was positive and had started to trend upward, but reversed course and plunged quite substantially to become negative during and after the crisis. Just prior to the subprime lending crisis, aggregate liquidity creation was again abnormally positive and trending up, but began to decline during the crisis, although it remains abnormally high by historical standards. The other crises, which are less directly related to banks, did not seem to exhibit such noticeable impact. Third, liquidity creation has both decreased during crises (e. g. , the 1990-1992 credit crunch) and increased during crises (e. g. , the 1998 Russian debt crisis / LTCM bailout). Thus, liquidity creation likely both exacerbated and ameliorated the effects of crises. Fourth, off-balance sheet illiquid guarantees (primarily loan commitments) moved more than semi-liquid assets (primarily mortgages) and illiquid assets (primarily business loans) during banking crises. Fifth, while liquidity creation is generally thought of as a financial intermediation service with positive economic value at the level of the individual bank and individual borrower (see Diamond and Rajan 2000, 2001), our analysis hints at the existence of a â€Å"dark side† to liquidity creation. Specifically, it may be more than coincidence that the subprime lending crisis was preceded by a very high level of positive abnormal aggregate liquidity creation by banks relative to historical levels. The notion that this may have contributed to the subprime lending crisis is consistent with the findings that banks adopted lax credit standards (see Dell’Ariccia, Igan, and Laeven 2008, Keys, Mukherjee, Seru, and Vig 2008), which in turn could have led to an increase in credit availability and off-balance sheet guarantees. Thus, while Diamond and Rajan (2000, 2001) argue that financial fragility is needed to create liquidity, our analysis offers the intriguing possibility that the causality may be reversed as well: too much liquidity creation may lead to financial fragility. 9 5. The effect of capital on banks’ competitive positions and profitability around financial crises This section focuses on the second goal of the paper – examining how bank capital affects banks’ competitive positions and profitability around financial crises. We first explain our methodology and provide summary statistics. We then present and discuss the empirical results. In an ad ditional check, we examine whether the stock return performance of high- and low-capital listed banks is consistent with the competitive position and profitability results for large banks. In another check, we generate some â€Å"fake† crises to analyze whether our findings hold during â€Å"normal† times as well. 5. 1. Empirical approach To examine whether banks with high capital ratios improve their competitive positions and profitability during financial crises, and if so, whether they are able to hold on to this improved performance after these crises, we focus on the behavior of individual banks rather than that of the banking sector as a whole. Because our analysis of aggregate liquidity creation by banks shows substantial differences across crises, we do not pool the data from all the crises but instead analyze each crisis separately. Our findings below that the coefficients of interest differ substantially across crises tend to justify this separate treatment of the different crises. We use the following regression specification for each of the five crises: ? PERFi,j = ? + ? 1 * EQRATi,j + B * Zi,j (1) where ? PERFi,j is the change in bank i’s performance around crisis j, EQRATi,j is the bank’s average capital ratio before the crisis, and Zi,j includes a set of control variables averaged over the pre-crisis period. All of these variables are discussed in Section 5. 2. Since we use a cross-sectional regression model, bank and year fixed effects are not included. In all regressions, t-statistics are based on robust standard errors. Given documented differences between large and small banks in terms of portfolio composition (e. g. Kashyap, Rajan, and Stein 2002, Berger, Miller, Petersen, Rajan, and Stein 2005) and the effect of capital on liquidity creation (Berger and Bouwman forthcoming), we split the sample into large and small banks, and run all regressions separately for these two sets of banks. Large banks have gross total assets (GTA) exceeding $1 billion at the end of the quarter preceding the crisis and small banks have GTA up to 20 $1 billion at the end of that quarter . 5. 2. Variable descriptions and summary statistics We use two measures of a bank’s performance: competitive position and profitability. The bank’s competitive position is measured as the bank’s market share of overall liquidity creation, i. e. , the dollar amount of liquidity created by the bank divided by the dollar amount of liquidity created by the industry. Our focus on the share of liquidity creation is a departure from the traditional focus on a bank’s market share of deposits. Liquidity creation is a more comprehensive measure of banking activities since it does not just consider one funding item but instead is based on all the bank’s on-balance sheet and off-balance sheet activities. To establish whether banks improve their competitive positions during the crisis, we define the change in liquidity creation market share, ? LCSHARE, as the bank’s average market share during the crisis minus its average market share over the eight quarters before the crisis, normalized by its average pre-crisis market share. To examine whether these banks hold on to their improved performance after the crisis, we also measure each bank’s average market share over the eight quarters after the crisis minus its average market share over the eight quarters before the crisis, again normalized by its average market share before the crisis. The second performance measure is the bank’s profitability, measured as the return on equity (ROE), i. e. , net income divided by stockholders equity. 23 To examine whether a bank improves its profitability during a crisis, we focus on the change in profitability, ? ROE, measured as the bank’s average ROE during the crisis minus the bank’s average ROE over the eight quarters before the crisis. 24 To analyze whether the bank is able to hold on to improved profitability, we focus on the bank’s average ROE over the eight quarters after the crisis minus its average ROE over the eight quarters before the crisis. To mitigate the influence of outliers, ? LCSHARE and ? ROE are winsorized at the 3% level. Furthermore, to ensure that average values are calculated based on a sufficient number of quarters, we 23 We use ROE, the bank’s net income divided by equity, rather than return on assets (ROA), net income divided by assets, since banks may have substantial off-balance sheet portfolios. Banks must allocate capital against every offbalance sheet activity they engage in. Hence, net income and equity both reflect the bank’s on-balance sheet and off-balance sheet activities. In contrast, ROA divides net income earned based on on-balance sheet and off-balance sheet activities merely by the size of the on-balance sheet activities. 24 We do not divide by the bank’s ROE before the crisis since ROE itself is already a scaled variable. 21 require that at least half of a bank’s pre-crisis / crisis / post-crisis observations are available for both performance measures around a crisis. Since the subprime lending crisis was still ongoing at the end of the sample period, we require that at least half of a bank’s pre-subprime crisis observations and all three quarters of its subprime crisis observations are available. The key exogenous variable is EQRAT, the bank’s capital ratio averaged over the eight quarters before the crisis. EQRAT is the ratio of equity capital to gross total assets, GTA. 25 The control variables include: bank size, bank risk, bank holding company membership, local market competition, and proxies for the economic environment. Bank size is controlled for by including lnGTA, the log of GTA, in all regressions. In addition, we run regressions separately for large and small banks. We include the z-score to control for bank risk. 26 The z-score indicates the bank’s distance from default (e. g. Boyd, Graham, and Hewitt 1993), with higher values indicating that a bank is less likely to default. It is measured as a bank’s return on assets plus the equity capital/GTA ratio divided by the standard deviation of the return on assets over the eight quarters before the crisis. To control for bank holding company status, we include D-BHC, a dummy variable that equals 1 if the bank was part of a bank holding company. Bank holding company membership may affect a bank’s competitive position because the holding company is required to act as a source of strength to all the banks it owns, and may also inject equity voluntarily when needed. In addition, other banks in the holding company provide cross-guarantees. Furthermore, Houston, James, and Marcus (1997) find that bank loan growth depends on BHC membership. We control for local market competition by including HERF, the bank-level HerfindahlHirschman index of deposit concentration for the markets in which the bank is p How to cite Role of Computer in Daily Life, Essay examples

Investigating environmental issues involving the Polaroid Company Essay Example For Students

Investigating environmental issues involving the Polaroid Company Essay We, Giang, Brailovski, A ; Steinberg Consultants, have finalized this analytical study in order to decently analyze the environmental issues at manus affecting the Polaroid Company. This study examines Polaroid s current direction of their environmental duties and costs. In order to decently turn to the state of affairs, our advisers have analyzed Polaroid in an environmental scene and have investigated their current patterns of TUWR and EARS. While our findings suggest that the company s current plans have drastically improved their environmental cost capablenesss, we believe that they contain assorted defects and have therefore determined that accommodations should be implemented. Our house has come up with two options in order to assist Polaroid pull off their environmental duties and costs in a more productive mode. The suggested options will let for decreased pollution every bit good as lower overall costs, which will so take to greater relationships with environment and authorities organic structures. Additionally, our proposed options may in fact lead to greater gross for the company and the increased dependability of fiscal statement figures ; these consequences can be accomplished through alterations in Polaroid s current cost allotment meth ods. The first option that our house suggests involves budgeting entire pollution and environmental costs and so apportioning them to single house divisions in order to supply a mark pollution cap for directors. This pollution cap will be maintained through direction marks, restricting entire environmental pollution. This alternate wholly changes the cost allotment methods presently performed by EARS. The 2nd alternate involves comparing the part border of the division with the waste liability generated by its operations. From this comparing, the efficiency of the waste decrease plan and the profitableness of each division can be analyzed. This analysis can take to the finding of whether to extinguish divisions that are utilizing more Class I-IV chemical wastes if the costs of cut downing waste are higher than the runing border of the division. Finally, presuming that the managing of costs will go on to turn and go a critical factor associating to concern sustainability, our advisers have come up with of import recommendations that will assist Polaroid to execute under a more productive environmental attack. Our recommendations provide insight into why the first option is more practical for Polaroid and we besides help to show how this option can be implemented instantly. We hope that the study that follows AIDSs you in doing your determinations. Report Current Situation Facing Polaroid It is of import to analyse the current state of affairs facing concerns sing environmental cost direction before analyzing how Polaroid is and should act in conformity. In the mid-1980s, the US started implementing a forced killing for companies who committed environmental harm and these costs would greatly impact the companies liabilities. Today, in 1993, more and more traded companies are being identified as potentially responsible parties ( PRPs ) and the figure is assumed to turn. Countries other than the US are now suggesting ordinances that allege that companies are responsible for consumer disposal of their merchandises after usage ; this is referred to as the take back rule. In add-on, ISO 9000 is a voluntary enfranchisement but is progressively being demanded in Europe. The US is besides making their portion in acquiring companies to rectify their risky waste and this duty has stemmed from the RCRA and the CERCLA. CERCLA is a US jurisprudence that is really vague as it ca n keep anyone responsible for the killing that can be of any size and any cost. The preceding procedures clearly indicate the turning importance of pull offing environmental costs as they can take to serious long-run liabilities if non decently accounted for. Polaroid has been named a PRP on several Superfund sites which will take to cleanup costs in the 10s of 1000000s of dollars per site. Besides, Polaroid is an international company hence possibly holding to follow with the return back rule in certain states. It can be assumed that the US may take on similar steps as good hence taking to Polaroid being apt to even more environmental costs. Since 1988, Polaroid has been systematically apt and has been advised by the EPA that they must assist to retrieve multiple sites. It is clear that in order for Polaroid to cut down the liabilities that may originate, proper environmental duty and cost direction are critical. Background of TUWR and EARS In the past few old ages, Polaroid has been badly criticized by different organisations due to its production of significant sums of toxic wastes. In 1987, Polaroid was targeted by Greenpeace as being the worst toxic defiler of Boston Harbor. To counter this unwanted promotion, the company took a new attack in commanding its waste: Polaroid s directors began by puting the aggressive mark of a 10 % waste decrease per unit per twelvemonth to counter waste liability and delight the public sentiment. This extremist decrease was made possible by implementing the TUWR plan that was managed by the Environmental Accounting and Reporting System ( EARS ) . How does TUWR assist blow decrease? The Toxic Use and Waste Reduction Program is a voluntary attempt made by Polaroid to expeditiously cut down waste generated by the production installations. It is based on three premises: 1 ) cut down waste at beginning, instead than at the terminal of pipe , 2 ) set a series of marks for waste decrease, and 3 ) maintain unfastened communications with, and educate local communities and environmental groups. This plan is a great inducement for the company s division directors to make of import ends in cut downing the pollution created by the company s production. Polaroid set a chief end where the usage of waste per unit of production has to be reduced at the beginning by 10 % per twelvemonth from 1988 and stoping in 1993. It besides added a corollary end where it will stress the addition in recycling of some stuffs in the procedure of production. How does EARS assist blow decrease? The Environmental Accounting and Reporting System supports the TUWR in its map of cut downing waste, by spliting the waste usage rate between five different classs of stuffs. This coverage system can categorise up to 1,700 chemicals of which Polaroid uses about 800 at any given clip. None Provided1 Essay SummaryThis option is good to Polaroid because budgeting overall pollution end product and environmental costs keep both overall pollution and cost exposure to the company low. This allows Polaroid to keep good relationships with the environmental and authorities organic structures, and making low overall costs will besides let it to cut down environmental costs in a thick of progressively rigorous statute laws. Furthermore, apportioning divisional pollution indexes and environmental cost budgets to divisional directors gives them a mark to work towards in maintaining pollution degrees low. This provides them with more motive and freedom to believe about bring forthing higher grosss. As a consequence, the house productiveness would be higher. Additionally, Polaroid s soon contradictory recognition system of honoring high credits for both pollution decrease and net income coevals could be eliminated, as directors are now given mark pollution degrees, and can mor e easy concentrate on gross coevals. This presents benefits to both Polaroid and its employees. Simultaneously, by apportioning costs utilizing budgeted environmental costs, Polaroid has a clearer model in accounting for costs. These costs are budgeted based on historical informations and experience, and could be adjusted for over/under allotment. This allows for good cost accounting steps, supplying a more accurate degree of environmental costs accounted for. Subsequently, this allows Polaroid s direction to non merely pull off its costs suitably, but besides to hold dependable financial/statistical informations to back up its statements with environmental bureaus and other PRPs when apportioning overall cleaning up costs of contaminated evidences. This serves to take down Polaroid s costs over the foreseeable hereafter. Not to bury, it besides allows for more precise fiscal coverage criterions ; supplying an accurate liability coverage on the fiscal statements, and maintaining with IFRS and US GAAP s rule of supplying verifiable and collateral values. Alternate 2: Additions to the Current System For Polaroid to cut down its overall negative environmental impact, it could besides implement an alternate technique: the company can extinguish divisions that are utilizing more Class I-IV chemical wastes if the costs of cut downing waste are higher than the runing border of the division. In this instance, the TUWR is still used to cipher pollution costs per unit of end product, which will so be used to obtain overall environmental costs per division. The principle for such a method is that the sum of toxic waste and the costs needed to take it are straight related to each other. Hence, if the costs of cut downing waste are significantly higher than the runing border of the division, this represents significantly high degrees of toxic waste. Using runing border as a benchmark can therefore function as a guideline to toxic waste direction. In add-on to keeping low degrees of pollution/toxic waste, it besides raises long-run profitableness of Polaroid. Therefore, this alternate allow s Polaroid to keep low environmental costs, make a potentially good resonance with environmental and authorities organic structures, and increase company profitableness. On the other side, in larger divisions, the cost of cut downing waste may be smaller than operating net income. However, its overall toxic waste degrees and costs of cut downing may still be significant. This leads to high degrees of environmental pollution caused by Polaroid, at the same time doing high environmental costs for the house. In add-on, extinguishing these corporate divisions may take to removal of potentially profitable divisions of the house that may give high net incomes if environmental costs are better managed by other agencies. It besides does non make accurate methods of accounting for environmental costs. This add-on has to be analyzed in deepness by the comptrollers of the company before any execution actions are taken. Recommendations While our findings suggest that Polaroid s current plans of TUWR and EARS have drastically improved their environmental cost capablenesss, we believe that they contain assorted restrictions and have therefore determined that accommodations should be implemented. While the TUWR plan is turn outing to be really successful and encompasses the new environmental values of the company, EARS has some issues refering its allotment of the waste liability per merchandise. Consequently, in order to better cut down overall pollution degrees and guarantee good accounting patterns and steadfast profitableness, two options should be considered. First, entire pollution and environmental costs can be budgeted, and so allocated to single house divisions to supply a mark pollution cap for directors. Alternatively, divisions with higher costs of cut downing waste than the runing border of the division could be eliminated. In Polaroid s instance, the best solution is to use the first option of budgeting pollution and environmental costs, so apportioning it to the divisions. This is because this method is optimum in pull offing the houses environmental costs ; take downing overall pollution and entire costs incurred to the house. It besides allows for best cost accounting and fiscal coverage steps, and establishes a good repute for the house. Additionally, it is a extremely executable, low cost method, which ensures low environmental costs for Polaroid despite a ltering statute laws. In order implement this new system instantly, Polaroid should foremost prosecute in arrested development and discrepancy analysis on its merchandise demand to calculate steadfast end product. The company should so budget a bound on entire pollution waste for the approaching old ages and so apportion pollution degrees and costs utilizing a mark divisional pollution index for single divisions. Finally, it can so inform employees of the alteration in system, foregrounding the alteration in the function of TUWR in tracking pollution degrees. Implementing this step right is important, and will supply Polaroid with unprecedented benefits.