Table of Contents

Complexity and Crisis in the Financial System

Complexity and Crisis in the Financial System

Critical Perspectives on the Evolution of American and British Banking

Edited by Matthew Hollow, Folarin Akinbami and Ranald Michie

With contributions from across the disciplines of law, history, finance, and economics, Complexity and Crisis in the Financial System offers a truly interdisciplinary study of the relationship(s) between crises and complexity in the US and UK financial markets. Taken together, the contributions in this volume not only challenge many often taken-for-granted ideas about the nature of financial crises, but also broaden our understanding of the long-term causes (and consequences) of the global financial crisis of 2007–2008.

Chapter 12: Financial reporting, banking and financial crisis: past, present and future

Mark Billings

Subjects: business and management, critical management studies, strategic management, economics and finance, economic psychology, financial economics and regulation


This chapter examines the relationship between financial reporting, banking and crisis. The quality of banks’ financial reporting is often cited as a contributory factor in banking crises. There is now a broad presumption in favour of greater disclosure in banks’ published financial statements. This is argued to enhance transparency and improve information flows, thereby contributing to market discipline and financial stability, and lead to the more efficient allocation of resources, with sound banks rewarded and the unsound penalised. But transparency in banks’ financial statements has not always been considered advantageous and, arguably, much remains to be done to realise full, or even sufficient, transparency. The chapter consists of three sections. The first summarizes the evolution of financial reporting in the twentieth century in the British banking sector, where, until relatively recently, regulation permitted obscurity, on the grounds that this supported stability. The second section examines the focus of particular controversy in ‘our’ financial crisis of the early twenty-first century – fair value accounting, sometimes referred to as ‘mark-to-market’. The final section discusses shortcomings in some other aspects of financial reporting and accounting in banking in the years preceding ‘our’ crisis. In the inevitable post-crisis reaction, regulators signalled their dissatisfaction with financial reporting, and long-held concerns about the quality of audits and concentration in the market for audits of large companies were again raised. This section also examines some of the numerous suggestions for improving financial reporting in the wake of ‘our’ crisis, many of which remain to be implemented.

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