Title
Bank Runs and the Accounting for Illiquid Assets in Financial Institutions
Document Type
Article
Publication Title
Accounting Education
Publication Date
1-1-2014
Abstract
Financial services are an increasingly important sector in modern economies, yet many accounting and auditing texts focus on manufacturing and retailing. This teaching note describes the role of financial institutions in transforming long-term, difficult-to-sell assets into short-term bank accounts. This is referred to as liquidity transformation. The social benefits and risks of liquidity transformation are described. The social benefit occurs due to the increased liquidity provided by the bank to depositors. The risk comes in the form of a bank run, wherein difficult-to-sell assets cannot be redeemed in time to cover the rapid and unexpected withdrawals of depositors. The financial statements of a financial institution are presented and the issue of valuation is discussed. Finally, practical relevance for accounting students is enhanced by including discussions of historical precedents and of implications for financial reporting and auditing. © 2014 © 2014 Taylor & Francis.
Volume
23
Issue
3
First Page
277
Last Page
294
DOI
10.1080/09639284.2013.872349
Recommended Citation
Meder, A., Schwartz, S., Wu, M., & Young, R. (2014). Bank Runs and the Accounting for Illiquid Assets in Financial Institutions. Accounting Education, 23 (3), 277-294. https://doi.org/10.1080/09639284.2013.872349
ISSN
09639284
E-ISSN
14684489
