An evaluation of the Economic Issues Identified in the ICB Report on Banking

Introduction In 2007, the United States of America woke up to a financial crisis that resulted from a continuum of malpractices among the financial institutions in the country.Advertising We will write a custom assessment sample on An evaluation of the Economic Issues Identified in the ICB Report on Banking specifically for you for only $16.05 $11/page Learn More The crisis spread to the other countries in the world and this caused a major panic among many world economies; both developing and developed. The worst was yet to come as at the latter stages of the financial crisis various international financial institutions would collapse due to failure in their stress test. This problem meant that millions of people and institutions lost wealth through the various companies’ collapsing stock. Virtually all the economies of the world experienced a negative growth. The effects of the financial global financial crisis continue to be felt to this date an d as such various measures have been taken to cushion individuals, institutions and governments from further adverse effects from the crisis or any future economic crunch. Governments have enacted rules and regulations that aim at controlling the financial sector. These measures taken to create a cushion against such effects in the future need to address the problem both regionally and internationally. This is because of the link that exists among the modern day financial institutions of the world. International borrowing is a common phenomenon in the modern day business world and as such, the problem of the international financial crisis needs to be addressed on international fronts.Advertising Looking for assessment on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More In effect, governments instituted committees and engaged various research firms to come up with reports on the causes of the global financial crisis and the measures that ought to be taken to curb the effects. One such report is the one given by the Independent Commission on banking (ICB). This essay evaluates the economic issues identified in the ICB report on banking that highlighted a number of issues in the way banks and the banking sector, operated in the run up to the economic crunch of 2007. The Independent Commission on Banking report This commission was established by the UK government in June 2010. The main responsibility of the commission was to establish structural and non-structural reforms in the banking sector that would ensure financial stability and competition. The commission came up with an interim and a final report which majorly focused on the reduction of the probability of systemic financial crises in the future, to ensure a constant flow of credit in the real economy and to enable households to manage their financial risks. The commission came up with recommendations that were aimed at providing financial stabil ity to the economy through various measures most of which revolved around government regulations. The main recommendations were to have financial institutions enhance their loss absorbing abilities; make it less costly to help banks that get into financial trouble. These recommendations together with others aimed at improving the competition will be discussed in the ensuing text. The Role of Money and Liquidity in the Economy One of the attributes of money is that it is used as a medium of exchange. This means that all financial transactions take place with money being the measure of value.Advertising We will write a custom assessment sample on An evaluation of the Economic Issues Identified in the ICB Report on Banking specifically for you for only $16.05 $11/page Learn More Money is considered the most liquid asset that an organization can hold at any given time. The term liquidity refers to the ability to buy real goods immediately. Money is therefor e the most liquid asset although other assets such as treasury bills are also very liquid. Assets can be classified as liquid, semi-liquid or illiquid. A company that has liquid assets such as cash is able to meet its current obligations as they fall due. However, if a company has semi liquid assets and illiquid assets, it may experience problem when trying to convert the semi-liquid assets to liquid assets so as to meet the current obligations as they fall due. Illiquid assets are those that cannot be easily converted to liquid assets on demand. A company is therefore required to maintain a certain amount of its assets in the liquid form so as to help it meet its liquidity needs whenever they fall due. The importance of liquidity can therefore not be over emphasized. In the run up to the global financial crisis the main problem arose when financial institutions experienced liquidity problems in the mortgage markets. Other financial banks that had cash became reluctant to lend to th ese financial institutions and since a lot of assets were held up in illiquid assets the financial sector came tumbling down. The importance of money is seen herein therefore since money is able to help a company meet its current financial obligations as they fall due.Advertising Looking for assessment on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Liquidity is therefore as vital aspect of any financial institution since financial obligations are usually net by liquid assets. There is always a relationship between liquidity and crises. When the financial industry increases in capital and liquidity decreases, a crisis is likely to occur and a look at the recent financial crises reveals that the fall of liquidity has a high correlation with financial crises. Understanding Liquidity provision It is clear that liquidity played a critical role in the 2007 financial crisis. It is therefore paramount to understand the importance of liquidity provision in the financial institutions and markets context. To understand this, the concept of financial intermediation will need to be introduced. Financial intermediation occurs due to financial surplus and deficits. It is defined as the act by the financial institutions mostly banks to acquire cash from money lender through deposits and savings and avail this cash to the various money borrowe rs. Therefore a bank acts as a financial intermediary between the borrowers and the lenders. In carrying this role, banks usually receive liquid cash and avail the same to the borrowers. The banks are required to however, reserve a portion of the deposits as a reserve ratio. This enables them to cushion themselves from defaulting loans as thus reducing the effects of possible default risk. In this regard the ICB had a recommendation to the government to enact regulations that will help the banks absorb the losses that come from defaulting and this is meant to increase liquidity. The need for financial intermediation therefore comes in where at any given time there are individuals or corporate who have the surplus cash at their disposal while at the same time there are others that have deficit. The need to borrow raises the need for financial intermediation. The problem arises however when the financial institutions lend much money to the borrowers leading to a liquidity problem. Sin ce financial institutions also borrow from one another, the only solution to this liquidity problem from the money lenders is to borrow from other financial institutions. A failure in the inter-bank borrowing usually depicts signs a financial crisis. The approach to regulation of the Financial Services Authority The whole report aimed at proposing regulation and enacting requirements that seek to provide financial stability among the financial institutions. The several methods that were put forward to achieve this were to increase the loss-absorbency by banks, structural reforms, as well introducing the ring fencing concept in retail banking. These proposals were all aimed at ensuring that the financial institutions and hence the economy is cushioned from the adverse effects of the financial crisis. Loss absorbency meant that banks are required to have a primary loss absorbing capacity of at least 17%- 20%. This would ensure that retail banking sector would have equity as part of th at loss-absorbing capacity. The other methods such as financial stability and structural reforms were all aimed at ensuring that the market risk is cushioned against. These measures are however not to be used in seclusion. They are meant to complement each other and not to act as mutually exclusive courses of actions. The importance of regulation therefore comes in that the financial need to practice rational and have measures that are referred to as prudent. This is important more so when operating in a financial environment that is highly volatile. The various principles behind the financial regulation are increasing the ratio of capital to â€Å"risk weighted† assets and providing a thick layer of equity capital. The structural reforms were aimed at having a structural separation that would make it easier to help out banks that get into problems. This was proposed because of the observation made there were various structural malpractices such as a combination of retail and investment banking and so on. Examination of the various financial markets involved Financial market is the system that incorporates the financial institutions, financial intermediation, the money and the capital markets in one system and seeks to provide a common playground where all the financial players can operate. If the financial markets are perfect, the liquidity in the financial system is efficient and as such the banks are able to hedge on the possible liquidity shocks. A successful management of the liquidity in the market means that the firms are able to operate at equilibrium with the financial securities. If the financial markets are incomplete, the firms experience the problem of liquidity since they are unable to hedge on the liquidity risks. This is a primary source of financial crisis among many financial institutions and as they continue on their financial intermediation role it becomes exceedingly strenuous for them to operate under such liquidity problems. This can further lead to cash-in-the-market pricing. This leads to a subsequent fall in the prices of safe assets and as such, a situation of financial fragility can result. Since liquidity holders have the opportunity cost of lending their cash to banks, they can in turn choose to invest their cash in other assets. This means that the financial system will experience a shortfall in the amount of liquid assets in terms of deposits. Therefore the complete and the incomplete financial markets have a role to play in ensuring that the money lenders prefer savings to direct investing. As such, financial markets ought to be less volatile so that the money lenders can deposit their cash and consequently boost the liquidity. The other problem that may be experienced by incomplete financial markets is the contagion. This happens when there is a high inter-linkage between the banks. The problem with high inter-linkage is that a problem in one bank easily spreads to other banks and as such a liquid ity problem experienced by one bank can result in a subsequent problem on another one. This is because a bank that experiences a financial shock will cause another bank that has claim on its stock which falls in value. If the system in the financial markets is highly inter-related, the effects may spill over to many other banks resulting in a crisis that affects the whole economy. The recommendations proposed by the ICB therefore sought to deal with this problem of contagion through proposing structural reforms that encouraged smaller control spans among the financial institutions. Conclusion The final report by the Independent Commission on Banking (ICB) aimed at creating a more stable and a competitive financial sector in the United Kingdom. The run up to the global financial crises was characterized by a lot of financial institutions’ malpractices. As such according to the ICB final report, the financial institutions ought to put in place measures that ensure that the vari ous critical requirements such as liquidity provision, financial stability and loss absorption are well catered for. The financial markets also ought to be complete as this will ensure that the inter-relationship between banks do not pose a huge financial risk to the financial institutions and the financial markets as well. The financial institutions’ structures ought to be simplified such that the firm can easily be sorted in case of a financial crisis. The aspect of ring-fencing should also be incorporated in the retail banking so as to ensure that the banks operate within allowable limits of lending and reserve ratios. All these solutions ought to be used to complement each other rather that as mutually exclusive courses of action. This will ensure a diversified approach that will allow the financial institutions to operate in clearly spelt out financial markets and reduce the various financial risks that pose a threat to the sustainability of complete financial markets. T hese factors once incorporated in the modern day financial institutions management will ensure that the firms do make decisions that will avoid future financial crises. References Acharya, V., Yorulmazer, T. (2008). Information contagion and bank herding. Journal of Money, Credit and Banking , 215-31. Allen, N. B., Gregory, F. U. (2011). The Economics of Small Business Finance: The Roles of Private Equity and Debt Markets in The Financial Growth Cycle. Journal of Banking Finance , 236-49. Barro, R. J. (2006). Rare disasters and asset markets in the twentieth century. The Quarterly JOurnal of Economics , 823-66. Beck, T. (2002). â€Å"Financial Development and International Trade. Is There a Link? Journal of International Economics, , 107-31. Bushnell, P. L., Redman, T. P. (2001). Macro-economic Growth in the UK. London: Routledge Publishers. Chrystal, K. A., Lipsey, R. G. (1997). Economics for Business and Management. New York: Oxford University Press. Degryse, H., Ongena, S. (2008). Competition and Regulation in the Banking Sector: A Review of the Empirical Evidence on the Sources of Bank Rents. Amsterdam: Elseiver. Jayaratne, J., Philip, E. S. (1996). The Finance-Growth Nexus: Evidence from Bank Branch Deregulation. Quarterly Journal of Economics , 639-71. Michael, W. (2010). Macroeconomics of the Global Financial Crisis: Monetary and fiscal Responses. Oxford review of Economic Policy , Volume 26 (Issue 1.), 32. Motta, M. (2004). Competition Policy: Theory and Practice. New York: Cambridge. Pauline, W., Sidney, J. G. (2007). International Financial Analysis and Comparative Corporative Performance. Journal of International Financial Management and Accounting , 111-30. Shleifer, A., Vishny, R. (1992). Liquidation values and debt capacity: A market equilibrium approach. The Journal of Finance , 1343-66. van Lelyveld, I., Knot, K. (2008). Do financial conglomerates create or destroy value? Evidence for the EU. Journal of Banking and Finance , 2312-21. Wagner, W. (2010). Diversification at financial institutions and systemic crises. Journal of Financial Intermediation , 373-86. Wendy, C., Mayer, C. (2003). Finance, Investment and Growth. Journal of Financial Economics , 10-326. Wild, J. J., Supranyam, K. R., Hasley, R. B. (2007). Financial Statement Analysis. 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Gnostic Jesus Essays - Coptic Literature, Christology, Gnosticism

Gnostic Jesus Essays - Coptic Literature, Christology, Gnosticism Gnostic Jesus Gnostic writings of Jesus portray him as a heavenly redeemer made less of flesh than of spirit. The emphasis of Jesus' importance is not on his physical humanness but rather, on his ability to show people the way to the kingdom. Jesus put on flesh in order to give people gnosis and reveal to them where they come from and where they will eventually return. When it is time for Jesus to return to his heavenly home, he is crucified and resurrected before he finally ascends. His body's lack of importance in some Gnostic texts gives this series of events a different connotation than other versions of the story more common today. The Gnostic understanding of Jesus gives us better knowledge of what will happen to us when we leave the body and world in which we are currently trapped. This understanding also gives us insights into the realm in which we belong. The lack of concern for the body is also connected with the Gnostic view that anything that happens on this earth or in this realm is i rrelevant. I will argue that the issue of flesh is very significant in some Gnostic views of Jesus, citing examples from selected Gnostic texts including, the Gospel of Thomas, the Second Treatise of the Great Seth, Hypostasis of the Archons, the Gospel of Mary, the Gospel of Truth, the Treatise on the Resurrection and the Hymn of the Pearl. Most Gnostic books show Christ to be of heavenly origin. The books either explicitly say that he is from the father and heaven above or imply it by saying that he descended into earth. He is part of the heavenly triad with the Father and the Mother(Franzmann, 39). In the Second Treatise of the Great Seth, the author who is supposedly Christ says, I am from above the heavens (Ehrman, 231). He is also sometimes described as a heavenly light, I am the light which is above all of them: I am All. The All came forth from me and the All reached me (G of Th., v.77). Many people, however, look at Christ's incarnation in different ways. According to some Gnostic thought Christ comes to our earth and puts on Jesus' human body so that he may walk among us. I visited a bodily dwelling (Ehrman, 231). Some of the Gnostic writings show Jesus as an earthly being with a heavenly nature, while others show Jesus as a purely heavenly being with a lack of earthly context. In the Second Treatise of the Great Seth, Christ's incarnation was into Jesus' body in which he cast out the original occupier (Franzmann, 75). Christ's arrival on earth in the Gospel of Thomas is described in a docetistic way, I stood in the midst of the world, and I appeared to them in flesh (G. of Th, v.28). He is said to appear to them in flesh only in outward appearance (Franzmann, 78). The Gospel of Truth describes Jesus as a fruit of knowledge that when eaten gives people gnosis (Ehrman, 161). This Gnostic text shows Christ as a revealer. He is referred to as the book or logos, which reveals to us all that is unknown (Ehrman, 162). He put on the book, was nailed to a tree and published the edict of the father on the cross (Ehrman, 162). These actions say that by dying on the cross, which in this text is not in flesh, he is helping people receive gnosis. Many Gnostic views have implied a hatred of the body. The body is what is keeping people from realizing their origin (G. of Thomas, v.29). For Christ to have a human body seems strange because he has gnosis. Woe to the flesh which depends on the soul; woe to the soul which depends on the flesh (G of Th, v.112). According to the Hypostasis of the Archons, the body is just a shell for the spirit. Locked within the material shell of the human race is the spark of this highest spiritual reality which (as one Gnostic theory held) the inept creator accidentally infused into humanity at the creation on the order of a drunken jeweler who accidentally mixes gold

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An Analysis of Marketing Communications Tools Used by Venture Capital Essay

An Analysis of Marketing Communications Tools Used by Venture Capital Investment funds to attract Investors and Gain their Trust - Essay Example This research will begin with the statement that Venture Capital funds are attracting cash from all over the world to fuel the organic growth of the â€Å"new economy†. The new economy may be defined as an economy characterized by the absence of business cycles or inflations. The new economy usually has an accelerated rate of productivity growth. Industries such as the software industry and e-commerce characterize the new economy. It is the most trending financial services area with huge external interest caused by the recent Silicon Valley IPO(Initial Public Offering) success. Due to the fact that financial services Industry is relatively new Context for academic marketing literature, this dissertation will investigate current and potential utilization of marketing communication strategies that are or could be applied by Venture Capital (VC) Investment funds to attract investors and gain trust in their brand. Marco factors in the background of this research make this case par ticularly interesting. Post credit crisis effects on the financial industry, current global sovereign debt crisis, consumer skepticism, have external, negative impact on trust in the industry. Lerner contends that â€Å" financial crisis appears to have had a substantial negative effect on investors’ willingness to finance innovative entrepreneurship†. However, is it always the case? Most recent 2011private equity sector successes and boom in Venture Capital (VC) investments demonstrate that this sector is somewhat different and despite the economic crisis, money from institutional and private wealth is flowing into these funds with the expectation of high-risk – high-return. Not just high-risk, on top of that, in comparison to traditional Hedge funds, VC funds are perceived as being less transparent and even sometimes associated with money laundering. Hedge fund manager presenting in front of the panel of investors would normally quantify the nature of investme nt strategy.

Reflection of Independent Learning in the Classroom

Reflection of Independent Learning in the Classroom Reflecting on the approaches around the development of pupils independent learning and evidence and evaluate application in the classroom. Independent learning is when pupils set goals, monitor and evaluate their own academic development, so they can manage their own motivation towards learning (Mullings 2015). After looking into the research, one of the determining factors when it comes to independent learning, is getting a child to work on their own, with minimal direction and confidence. As I want my pupils to be able to manage their own learning and make independent decisions, I need to take a back seat and critically think about whether or not I need to intervene. Depending on the circumstances and the appropriateness of the situation, I will need to judge the relevance of my scaffolding, give students options and choices to encourage independency, and allow them to take responsibility for their own learning by also offering effective formative feedback. However, this cannot be done until I establish where they already are in their learning and how they actually learn. Knowing a childs zone of proximal development, will enable me to intervene at the most appropriate and effective stage. As Vygotskys theory implies, it is what a child can achieve by themselves and what they can achieve in collaboration with others (Vygotsky, 1978). According to Haring and Eastons instructional hierarchy (Fig 1), there are four phases of learning (Haring et al., 1978).   Ã‚   Fig 1. Most of the children I get to support are either at the acquisition stage or at the halting fluency stage, which determines the type of intervention they receive. Even if the intervention is set in line with the pupils ZPD, there is no guarantee that their work is appropriately differentiated back in the classroom, leading to a zone of anxiety. When I deliver Mind-the-Gap tutoring, the pupils I work with are at the acquisition stage and lack confidence. With sessions of repetitive practice and instructional techniques I am able to build upon their accuracy. I then focus on training the pupils to become more fluent. This is supported via precision teaching (e.g. times-tables) constant encouragement and instructional feedback to aid their self-motivation. Once the fluency is achieved and being maintained, I need to ensure it is being applied back in the classroom. The focus is then teaching them how to either apply the skill into meaningful contexts or not to confuse it with other similar skills. Finally, pupils can then be scaffolded on how to know how to adapt the target skill to and apply it to new challenges and situations. Communication is paramount and teamwork essential to ensure work is set at the right level by the teacher and that the newly acquired skills are being uitilised. the teacher should work closely with th e TA to planinterventions to how they can be linked to classroom teaching (SEN Code-of-Practice 6.52). I have started to introduce additional resources, such as a math mat and progressive success criteria to help promote independency. If successful, I will suggest it to other support staff within my year group, with the view to it being rolled out to all. I will need the full support of the SENCo and SLT to make sure this is consistently implemented. Carol Dweck deals with the theory that people view their intelligence in one of two ways; fixed and growths mindsets (Fig 2). Her findings also show that, rather than focusing on intelligence and innate achievement, it is far more important to reward effort, creative strategies, and perseverance. Becoming is better than being (Dweck 2006).    Fig 2. Upon reflection, I observed two children from the perspective of determining what type of learner each child was (Appendix 1). Initiating the change of learned helplessness to that of self-scaffolding with the SEN child will not happen overnight. I always aim to support pupils to become more independent. Van de Pol implies a key principle of scaffolding on which a TAs role should be based, is fading to develop the independence of the learner by reducing support and hand over responsibility to the child (Van de Pol et al., 2010). This is a strategy I have started to use with the pupils I work with, alongside roaming and roving around the classroom. My intention is purely to divorce myself from their learned attachment and their needing constant reassurance. I want them to adopt the concept of being able to assess what they can do independently first, before I intervene at the appropriate level (Fig 3). Blatchford defines the heuristic role as using a method of teaching that encourages learners to discover solutions for themselves (Blatchford et al., 2012). Fig 3. If there is any uncertainty, I encourage my pupils to ask a partner, throw their question out to the rest of the table or see what resources are available to help, before even thinking about asking an adult. Even then, I need to be aware of my questioning techniques. The more open ended questions that are asked, then the more emphasis is redirected back onto the pupil to provoke their own critical thinking skills. The cognitive domain involves knowledge and the development of intellectual skills (Bloom, 1956). Fig 4. Using Blooms Taxonomy questioning for critical thinking as a bench mark (Fig 4), I have tailored a more child friendly set of questioning cards as a pupil resource, helping to build upon their dialogic talk. I plan to share these with other support staff, with SLTs approval. Additionally, my school has implemented Talk 4 Learning strategies, which although at the early stages, have started to have a positive effect. Within one year group I observed, children were only provided with a learning objective and modelled WAGOLL. This seemed to be just enough to get by on with a majority of the class, but the lower attainers had no differentiated input, with the hope that the TA would offer that much needed support. The lower attainers had been given very little direction, so straight away looked to the TA for guidance. The TA aimed to guide the pupils through a series of open ended questions, praising when giving a correct answer. Some were prompted further with the aim of trying to refer back to previous lessons, but without the correct scaffolding and feedback little progress was made. John Hattie, famously analysed the effects of various educational innovations and methods and determined that feedback ranked highest, with an effect size of 1.13, whereas most innovations in schools sit around 0.4. Feedback needs to be formative to identify what pupils have achieved, what has been preventing them from achieving their learning goals and what they can do to improve further. It also needs to be progressive, done whilst pupils are still able to reflect upon the decisions they made. This can be effectively delivered when roaming and roving or fading in and out during a lesson, but after realising my own lack of informative feedback (appendix 2), I intend to ask SLT about CPD on feedback for TAs, as I see this as a needed area of improvement for us all. It has become quite apparent that processed success criteria is a much needed determiner when it comes to initiating the first stages of independent learning for the SEN child. I have recently been given a small group of lower attaining students to support with their maths work. After observing how these children were faltering when working their way to achieving the learning intention (appendix 3), I have now started to use process success criteria to help plug the gaps within their learning, which has been hindering achieving their overall objective. I not only aim to help break down their steps to success in written format but also where applicable, visually (Fig 5). Fig 5. So far, this has proved a successful strategy and has been fully embraced by the pupils, as they are now actively making progress independently, albeit resource supported. I will be trialing this as part of their assessment for learning, as success criteria should be linked to the learning, not the activity. Introducing AFL sheets will allow teachers to close the gap between current knowledge and new learning. Not only do they help clarify the learning objective and promote self-evaluation, they also act as a form of feedback. I have already liaised with an SLT member regarding the introduction of processed success criteria as a pre-requisite for all our lower attainers, to which he was in full agreement. Ironically, not long after our conversation, it was announced that as part of our high focus for this term that the school will be addressing how success criteria will be differentiated, so that they are appropriate for all children, and so that all groups make improved progress. It has been said that some people think that we have created a nanny state thats contributed to promoting fear of failure. John Cridland states that the education system must better prepare young people for life beyond the school gates. We need to take a step back to see the big picture and create a system that better reflects how well a schools culture nurtures the behaviours and attitudes young people need. This cannot be judged by exam results alone (Cridland 2014). I do agree, however, my concern is, given the expanding national curriculum and the focus on increased testing as a way to measure both teaching ability and pupil progression, how can time be found for the implementation of such productive concepts. Schools need to build a stronger foundation and utilise their support staff appropriately. I gave a copy of my first assignment on the role of the TA, to a member of SLT. The feedback I received initially was that it was very informative and provoked food for thought, so mu ch so, he planned to take it along to the next SLT meeting. I eagerly await further comment. Appendix 1 A always relies on the support of an adult to supply her with the answers. The first thing that she does is to look directly to the supporting adult in the room to come and work with her, without even attempting any independent work. A will always try to copy from whoever sits next to her, lacks confidence and fears making mistakes. She has a firm fixed mindset of learned helplessness which has resulted in her reliance on being spoon-fed. Z is self-initiated and not afraid to make any mistakes. He can work independently or collaboratively within a group. Z draws upon prior learning His growth mindset allows him the confidence to persevere, seeing any setbacks as a mini hurdle he needs to overcome, choosing which learner disposition he takes on board to aid his learning. His positive attitude feeds his hunger for knowledge. Appendix 2 Recorded Conversation After a basic skills assessment of using visual arrays, mastery questions on applying the written grid method were required for their next steps in multiplication. E:Miss, Im not sure how to do the grid method. TA:So, written method. Same scenario, but we are not going to draw the arrays. What is the calculation? E:13 x 9. TA:OK. What do you need to do first? E:Break the 13? TA:How? E:Into place value. TA:Correct. Show me how youll do that. E:One 10 and three 1s. TA:Good. Now what? E:First you times 3 by 9, then 10 x 9. TA:OK, off you go. E:(writes) 3 x 9 = 27 and 10 x 9 = 90. TA:Good, now what do I do with those two answers? E:Add them together. TA:See. You know what to do. What do we need to remember when we use column addition? E:Make sure everything is in line. TA:Yes. We need to make sure our place value is aligned correctly. Well done! Reflection: Upon evaluation, I believe that I succeeded when it came to asking the appropriate open questions to provoke their own thinking, which helped them achieve their learning objective but evidently lacked the necessary more informative feedback the child deserved to understand their next target. I hope that I will be able to address this better after some directed CPD training. Appendix 3 Child Y LO: To use the grid method to solve multiplication word problems. SC: R U C S A C CAN DO CANT DO Understood what had to be done for step 1 of question. Chose correct operation. Partitioned numbers correctly on the grid. Did not know all of 4x table. Used times table grid in classroom. Aware that all the answers had to be added together. Addition calculation was written incorrectly. (pv not aligned) Able to calculate once prompted to use correct pv alignment. References Blatchford, P., Russell, A., Webster, R. (2012) Reassessing the impact of teaching assistants: How research changes practice and policy. Oxon, UK: Routledge. Blooms Taxonomy Available at: http://www.bloomstaxonomy.org/Blooms%20Taxonomy%20questions.pdf Accessed: 1 January 2017. Cridland, J. (2014) Available at: http://31.222.129.40/media-centre/the-point/2014/07/jcs-education-blog/ Accessed: 07 December, 2016. Dweck, Carol S. Mindset: the new psychology of success New York: Random House, 2006. Haring, N.G., Lovitt, T.C., Eaton, M.D., Hansen, C.L. (1978). The fourth R: Research in the classroom (pg 23-40). Columbus, OH: Merrill. Hattie, J., Timperley, H. (2007). The Power of feedback. Review of Educational Research Mullings, C. (2015) Available at: http://blog.irisconnect.co.uk/9-tips-for-encouraging-students-to-become-independent-learners/ Accessed: 12 December, 2016. SEND Code of Practice (2015) Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/398815/SEND_Code_of_Practice_January_2015.pdf Accessed: 26 December, 2016. Van de Pol, J., Volman, M., Beishuizen, J. (2010) Scaffolding in teacher-student interaction: a decade of research. Educational Psychology Review, 22, 382-296. Vygotsky, L.S. (1978) Mind in society: The development of the higher psychological process. Cambridge, MA: Harvard University Press.

Holy Sonnet 10 :: John Donne

William Penn, an English philosopher and founder of the Province of Pennsylvania, once said that, â€Å"For death is no more than a turning of us over from time to eternity.† He is saying that death is not the end of our lives, but just another stage. In the poem â€Å"Holy Sonnet 10† by John Donne, the poet talks to death itself and gives his opinion on his view of death and others’ views: it is something that cannot control anything, can be replaced by others things, and is not the end of a person’s life. Through the use of his figurative language, Petrachan form, and tone and language, Mr. Donne expresses the message that death is not to be feared because one lives on in heaven. John uses many examples of figurative language in his sonnet. To begin with, when Mr. Donne first commences his poem, he uses the personification â€Å"Death, be not proud† (1). The author is giving death the human characteristics of being â€Å"not proud.† The rest of the line continues as â€Å"though some have called you thee. † Death should not be prideful even if people think it is. John displays through this first line how he feels about death: he is too prideful for his own good. Furthermore, Donne uses another personification when he states â€Å"Mighty and dreadful, for thou are not so† (2). Again, he is giving death, a concept not a human, real characteristics. He believes death is not â€Å"mighty† or â€Å"dreadful† but something else. It gives his opinion that death is not â€Å"dreadful† to people in their lives but possibly beneficial. Later, the poet says â€Å"Thou art slave to fate, chance, kings, and desperate menà ¢â‚¬  (9). Death is merely being controlled by things like fate which is the only way he can act. He has no way to move on his own without these other forces. Like with war, death is the result not the cause: death cannot physically make people fight. This comparison devalues death in its importance and therefore its necessity. John Donne’s use of metaphors and personifications in his poem to emphasize his belief that death is not as bad as people or death thinks it really is but can actually be advantageous. The tone and allusions are important for John to portray how death is insignificant and irrelevant and that after death one moves on to a better place: heaven.

Role of Computer in Daily Life

Financial Crises and Bank Liquidity Creation Allen N. Berger †  and Christa H. S. 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 shar e 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: [email  protected] 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. [email  protected] 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 downturn, [†¦] lots of banks said they had also cut back lending because of a slide in their current or expe cted 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 also have real effects, in particular if a financial crisis ruptures the creation of liquidity (e. g. , Dellâ⠂¬â„¢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. 3James (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 liquidity 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 t o 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 5Studies 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, Mar ch 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 cris is 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 f irst 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 p rovision 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 f inancial 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 amo unt 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 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, 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 11Defining 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 mar ket 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. 5One 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 theirIn contrast, for high-capital small banks, profitabilit y 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 pre crisis 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 throughout 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 e ffect 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 14Allen 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 stand s 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 measureTo 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 fund s 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 classification 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 attrib utable 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 creat ion measure. This measure classifies loans by 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 liq uidity 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 in to 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 M anagement (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 à ¢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 empirical 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 dol lars. 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 exi st 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 GD P. 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 liquid ity 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 subsection 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 S&P500 index falling about 20%. During the years before the cra sh, 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 before 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 o f 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 abnormal 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"R aging 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, LTCMâ€⠄¢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 abnormally 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 ind ex 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 t he 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 Fed eral 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 discussed 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 cr edit 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 h e 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 slightly 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 liquidi ty 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, abnorm al 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 i s 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 a s 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 additional 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 h old 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 marke t 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 m ay 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