The most recent banking crisis happened in March 2023, when three small and medium-sized banks in the U.S. failed. Among the banks that collapsed was Silicon Valley Bank (SVB). As reported in a Bloomberg Law article (Pollard, 2023), SVB was founded in 1983 and the bank had about US$209 billion in total assets and about US$175.4 billion in total deposits at the end of 2022. It is important to note that there are usually several factors (both internal and external) that can cause a firm to enter into administration, which are not related to the audit quality. In relation to SVB, Professor Ramasastry (2023) from the University of Washington provided insights into why SVB failed and why bank failures are difficult to predict (see references below for the link). However, in cases where the client company fails, Kadous (2000) finds that the auditor is more likely to be found "guilty" even when they provided higher-quality audits. This points to the expectation gap relating to audits of financial reports. With reference to the collapse of SVB;

The most recent banking crisis happened in March 2023, when three small and medium-sized banks in the U.S. failed. Among the banks that collapsed was Silicon Valley Bank (SVB). As reported in a Bloomberg Law article (Pollard, 2023), SVB was founded in 1983 and the bank had about US$209 billion in total assets and about US$175.4 billion in total deposits at the end of 2022. It is important to note that there are usually several factors (both internal and external) that can cause a firm to enter into administration, which are not related to the audit quality. In relation to SVB, Professor Ramasastry (2023) from the University of Washington provided insights into why SVB failed and why bank failures are difficult to predict (see references below for the link). However, in cases where the client company fails, Kadous (2000) finds that the auditor is more likely to be found "guilty" even when they provided higher-quality audits. This points to the expectation gap relating to audits of financial reports. With reference to the collapse of SVB;

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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In 2008, the United States began to witness one of the worst recessions since the 1930s. The collapse of the housing bubble in 2006 led to a massive decline in real estate prices, affecting consumers and institutions, especially banking and financial entities. Severe liquidity shortfalls in the United States as well as other global markets led to a serious credit crisis. During the credit crisis of 2008-2009, several banks and other businesses went through a reorganization process or were forced to liquidate. Consider the following example: In January 2009, American electronics retailer Circuit City Inc. closed all of its stores and sold all of its merchandise. Source: "Circuit City to Shut Down." CNN Money. Cable News Network, n.d. Web. August 31, 2010. http://money.cnn.com/2009/01/16/news/companies/circuit_city This is an example of: O Reorganization O Liquidation
Which of the following was NOT a direct and major consequence of the 2007-2009 U.S. Subprime Financial Crisis? a. Small consumer and household savers lost all their money they had in savings accounts due to the failure of many smaller FDIC member banks b. Many people lost their homes when they could no longer make their payments after their subprime mortgage rates reset to a much higher rate after two years c. Lehman suffered a major financial collapse and ultimately was dissolved after many of its remaining parts were purchased by Barclays and Nomura, among others d. The U.S. stock markets dropped dramatically as the credit fueled economy of the mid-2000s started to suffer after the credit bubble began to burst.
Which of the following was NOT a direct and major consequence of the 2007-2009 U.S. Subprime Financial Crisis? Group of answer choices a. Small consumer and household savers lost all their money they had in savings accounts due to the failure of many smaller FDIC member banks b. Many people lost their homes when they could no longer make their payments after their subprime mortgage rates reset to a much higher rate after two years c. Lehman suffered a major financial collapse and ultimately was dissolved after many of its remaining parts were purchased by Barclays and Nomura, among others d. The U.S. stock markets dropped dramatically as the credit fueled economy of the mid-2000s started to suffer after the credit bubble began to burst.
In 2008, the United States began to witness one of the worst recessions since the 1930s. The collapse of the housing bubble in 2006 led to a massive decline in real estate prices, affecting consumers and institutions, especially banking and financial entities. Severe liquidity shortfalls in the United States as well as other global markets led to a serious credit crisis. During the credit crisis of 2008–2009, several banks and other businesses went through a reorganization process or were forced to liquidate. Consider the following example: In May 2009, General Motors started closing 2,600 of its retail outlets and finally filed for bankruptcy in June. It emerged from the bankruptcy protection by July 2009, after it received funding from the US government, the Canadian government, United Automobile Workers Union, and GM bondholders. Source: Farfan, Barbara. “General Motors Chapter 11 Bankruptcy Overview and Details.” About.com, Retail Industry. About.com, n.d. Web. August 31, 2010.…
Suppose you examine the central bank's balance sheet and observe that since the previous day, reserves had fallen by $100 million. In addition, on the asset side of the central bank's balance sheet, securities had fallen by $100 million. Do you think the size of the banking system's balance sheet would be affected immediately by these changes to the central bank's balance sheet? O Yes O No Explain your answer. Reserves appear on the (Click to select) side and securities appear on the Click to select) side of the banking system's balance sheet and so the changes would affect the (Click to select) of its balance sheet.
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Suppose ABC Bank has the following balance sheet items: checkable deposit received of $525 million, bank capital of $100 million, mortgage loans made of $500 million, and securities purchased of $50 million. Does ABC Bank still meet its reserve requirement? Why or why not? If not, what options are available to the bank to keep it from failing?
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