preprints.org > business, economics and management > accounting and taxation > doi: 10.20944/preprints202007.0006.v3

Preprint Brief Report Version 3 Preserved in Portico This version is not peer-reviewed

Version 1 : Received: 1 July 2020 / Approved: 2 July 2020 / Online: 2 July 2020 (13:01:52 CEST)
Version 2 : Received: 24 September 2020 / Approved: 24 September 2020 / Online: 24 September 2020 (12:16:56 CEST)
Version 3 : Received: 8 October 2020 / Approved: 8 October 2020 / Online: 8 October 2020 (09:38:17 CEST)

Bank crisis can mostly be traced to a decrease in the value of bank assets. Banks are vulnerable to a number of risks. This happens in one or a combination of the following incidences; when loans turn bad and cease to perform (credit risk), when there are excess withdrawals over available funds (liquidity risk) and rising interest rates (interest rate risk). Bad credit management, market inefficiencies and operational risk, among a host others can trigger panic withdrawals by depositors with a sense of insecurity emanating from the fear of loss of investment. In fact, the failure of Barings Bank and Lehman Brothers Holdings Inc was attributable to varied factors spanning from non-monitoring of employee activities, management’s involvement in dubious accounting practices, unethical business practices by management, over indulging in risky and unsecured derivative trade. To guide against similar bank collapse in the near future, there should be an enhanced communication among international regulators and authorities that exercise oversight responsibilities on the security market. National bankruptcy laws should be invoked to forestall liquidity crisis so as to prevent freezing of margins and positions of solvent customers.

Bank Collapse; Barings Bank; Lehman Bank; Derivatives

Business, Economics and Management, Accounting and Taxation

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