The academic paper “When it comes to the crunch: What are the drivers of the US banking crisis?” considers how permissive regulatory conditions helped change the size and scope of the US mortgage market.
Asset backed securitization facilitated an expansion of the US mortgage market and modified the structure of the value chain within which financial assets, risk and liquidity were managed. New sophisticated mortgage products, indulgent lending practices, loose credit assessment and flimsy documentation increased the probability of mortgage default in an economic downturn. US banks were not in a position to absorb mark-to-market losses on mortgage assets and goodwill impairment resulting from a credit crunch because they operate with narrow profit margins and a limited equity cushion in the balance sheet. This article questions the viability and sustainability of this banking business model.
The paper published in Accounting Forum 2009 was written together with Professor Colin Haslam and Eliot Heilpern. Read more about the paper at Accounting Forum - When it comes to the crunch.