This paper analyzes the responses from a nationwide telephone survey of 2,000 randomly selected mutual fund investors who purchased shares using the services of six different intermediaries, referred to as distribution channels -- brokers, banks, mutual fund companies, insurance companies, employer-sponsored pension plans, and “other” (e.g., financial planners). The survey provides data on the demographic, financial, and fund ownership characteristics of mutual fund investors.
Furthermore, it contains data on investors’ familiarity with the costs and certain investment risks associated with mutual funds and the information sources used to learn about these costs and risks. Accordingly, it is possible to create a measure of each mutual fund investor’s overall level of financial literacy.
Numerous research demonstrates that banks provide valuable economic functions in financial markets. One significant factor that affects financial market activity is the degree of competition. Notably, the competitive structure of the banking industry varies across countries. As an example, the financial systems in Greece and Belgium have a relatively high degree of concentration. In contrast, the banking sectors in France and Germany have been much more competitive. However, in recent years, there has been a considerable increase in consolidation among banks in many countries. Furthermore, due to the global financial crisis, consolidation has advanced at an even more aggressive pace.
In response, policymakers have expressed concern about the resulting impact on interest rates and the degree of influence of monetary policy. Existing empirical studies indicate that these concerns are legitimate. To begin, Hannan (1991) and Corvoisier and Gropp (2002) argue that borrowers in markets with higher concentration ratios face higher costs for loans. Moreover, they may also experience more difficulty obtaining access to credit Beck, Demirguc-Kunt and Maksimovic (2003) document that credit rationing occurs more often in concentrated banking systems. Other studies emphasize that concentration affects deposit rates.
The current banking crisis has raised much criticism of fair value accounting due to the mandatory adoption of SFAS 157 (Fair Value Measurement) in 2007 which resulted in large amounts of write-downs and recognition of credit losses in banks and financial institutions. This criticism has mainly focused on the unreliable value estimation for assets with illiquid markets and the systematic risk induced by excessive volatility under fair value accounting (Andrea et al., 2004; Landsman, 2005), and it has intensified during the current credit crunch. Many financial institutions blame fair value accounting for aggravating the financial crisis at a time where markets are extremely illiquid and proper valuation models are unavailable; some even call on FASB to reassess the new fair value standard. Advocates for fair value accounting, on the other hand, emphasize the benefits in terms of improved transparency and disclosure, promoting market discipline and providing relevant information for decision makers.
Given the ongoing debate amid the financial crisis, it is crucial to have a better understanding of the desirability of different accounting regimes for banks so as to provide guidance for policymakers and regulators in the post-crisis regulatory reform. To that end, this paper examines whether different financial reporting standards for banks provide relevant information for the prudential regulation and discipline of banks. Specifically, in a theoretical model I examine how accounting regimes affect the effectiveness of capital regulation in restricting banks’ risk-taking behaviors.
