WhaL are Lhe admlsslon requlremenLs for 8achelor of Sclence ln AccounLlng 1echnology ln Lhe

hlllpplnes?

O ,usL have recommendaLlon from Plgh school rlnclpal and school professor
O ,usL have Lhe Crlglnal copy of hlgh school card (lorm 138A)
O ,usL have mosL recenL medlcal and denLal healLh record
O ,usL Lake and pass Lhe College LnLrance LxamlnaLlon
O ,usL have a copy of nSC cerLlfled blrLh cerLlflcaLe
O ,usL have a cerLlflcaLe of good moral characLer
O ,usL have a copy of hlgh school dlploma
O ,usL have recenL 2x2 colored plcLures

Pow long does lL Lake Lo compleLe 8achelor of Sclence ln AccounLlng 1echnology ln Lhe
hlllpplnes?
1he 8achelor of Sclence ln AccounLlng 1echnology Lakes 4 years Lo compleLe


WhaL sub[ecLs are lncluded ln Lhe 8achelor of Sclence ln AccounLlng 1echnology program?


O AccounLlng for CovernmenL noLforroflL LnLlLles and Speclallzed lndusLrles
O lundamenLals of lnformaLlon SysLem and SysLem uevelopmenL
O lnLroducLlon Lo Lconomlcs wlLh Agrarlan 8eform and 1axaLlon
O Assurance rlnclples rofesslonal LLhlcs Cood Covernance
O Advanced CompuLer AppllcaLlons for AccounLanLs
O Sales Agency Labor and CLher Commerclal Laws
O Sales Agency Labor CLher Commerclal Laws
O Advanced llnanclal AccounLlng and 8eporLlng
O ,anagemenL ConsulLancy / AccounLlng 1hesls
O AudlLlng CompuLerlzed AccounLlng SysLem
O lnLroducLlon Lo CompuLerlzed AccounLlng
O roducLlon and CperaLlons ,anagemenL
O llnanclal AccounLlng 1heory and racLlce
O 8uslness CrganlzaLlon and ,anagemenL
O Cood Covernance Soclal 8esponslblllLy
O CosL AccounLlng and CosL ,anagemenL
O ,acroeconomlcs 1heory and racLlce
O ,aLhemaLlcal Analysls for 8uslness
O Law on CbllgaLlons and ConLracLs
O AccounLlng lnformaLlon SysLem
O Law on negoLlable lnsLrumenLs
O 8uslness and 1ransfer 1axes
O ,anagemenL ConsulLancy
O roducLlon ,anagemenL
O ,anagemenL AccounLlng
O ,arkeLlng ,anagemenL
O 8aslc 8uslness llnance
O llnanclal ,anagemenL
O 8uslness 8esearch
O 8uslness SLaLlsLlcs
O Work LducaLlon
O 8uslness ollcy
WhaL exam do l need Lo Lake Lo pracLlce as accounLlng Lechnlclans ln Lhe hlllpplnes?

A graduaLe of 8achelor of Sclence ln AccounLlng 1echnology needs Lo Lake and pass
Lhe Cert|f|ed Account|ng 1echn|c|an (CA1) Lxam|nat|on ln order Lo pracLlce as accounLlng
Lechnlclans ln Lhe hlllpplnes 1hls ls offered by Lhe Assoc|at|on of Chartered Cert|f|ed
Accountants (ACCA)

WhaL are Lhe requlremenLs for admlsslon Lo Lhe CerLlfled AccounLlng 1echnlclan LxamlnaLlon?


O ,usL noL have any case flled or pendlng for moral LurplLude ln any courL ln Lhe hlllpplnes
LhaL lnvolves moral LurplLude
O ,usL have flnlshed Lhe CerLlfled AccounLlng 1echnlclan program ln Lhe naLlonal lnsLlLuLe
of AccounLlng 1echnlclans
O ,usL have a copy of Lhe 1ranscrlpL of 8ecords wlLh Speclal order and daLe of graduaLlon
O ,usL be a holder of a degree ln 8achelor of Sclence ln AccounLlng 1echnology
O ,usL have an orlglnal copy of communlLy Lax cerLlflcaLe (cedula)
O ,usL have a copy of Lhe nSC auLhenLlcaLed blrLh cerLlflcaLe
O ,usL be of good moral characLer


WhaL are Lhe career opporLunlLles for graduaLes of 8achelor of Sclence ln AccounLlng
1echnology ln Lhe hlllpplnes?


O llnanclal Servlces ,anager (Commerce lndusLry and CovernmenL SecLors)
O Senlor lnformaLlon SysLems lnLernal AudlLor
O llnanclal AccounLlng and 8eporLlng SLaff
O Senlor lorenslc lnLernal AudlLor
O llnanclal SLaLemenL reparers
O ,anagemenL AccounLlng SLaff
O Ilce resldenL for llnance
O Chlef lnformaLlon Cfflcer
O AccounLlng 1echnlclan
O Senlor lraud Lxamlner
O Chlef llnanclal Cfflcer
O 1ax AccounLlng SLaff
O lnLernal AudlL SLaff
O llnanclal AnalysL
O 8udgeL AnalysL
O CredlL AnalysL
O CompLroller
hLLp//wwwflndunlverslLyph/ma[ors/bslnaccounLlngLechnologyphlllpplnes/

AccounLancy quallflcaLlons and regulaLlon
1he expecLaLlons for quallflcaLlon ln Lhe professlon of accounLlng vary beLween dlfferenL
[urlsdlcLlons and counLrles
AccounLanLs may be cerLlfled by a varleLy of organlsaLlons or bodles such as Lhe AssoclaLlon of
AccounLlng 1echnlclans (AA1) 8rlLlsh quallfled accounLancy bodles lncludlng Lhe CharLered
lnsLlLuLe of ,anagemenL AccounLanLs (Cl,A) AssoclaLlon of CharLered CerLlfled AccounLanLs
(ACCA) and lnsLlLuLe of CharLered AccounLanLs and are recognlsed by LlLles such as cbotteteJ
Moooqemeot Accoootoot (AC,A or lC,A) cbotteteJ cettlfleJ Accoootoot(ACCA or lCCA)
and cbotteteJ Accoootoot (uk AusLralla new Zealand Canada lndla aklsLan SouLh Afrlca
Chana) cettlfleJ lobllc Accoootoot (lreland !apan uS Slngapore Pong kong Lhe
hlllpplnes) cettlfleJ Moooqemeot Accoootoot (Canada uS) cettlfleJ Ceoetol
Accoootoot (Canada) or cettlfleJ ltoctlcloq Accoootoot (AusLralla) Some CommonwealLh
counLrles (AusLralla and Canada) ofLen recognlse boLh Lhe cerLlfled and charLered accounLlng
bodles 1he ma[orlLy of publlc accounLanLs ln new Zealand and Canada are CharLered
AccounLanLs however CerLlfled Ceneral AccounLanLs are also auLhorlsed by leglslaLlon Lo
pracLlce publlc accounLlng and audlLlng ln all Canadlan provlnces excepL CnLarlo and Cuebec
as of 2003 1here ls however no legal requlremenL for an accounLanL Lo be a paldup member
of one of Lhe many lnsLlLuLes

hLLp//schoolswlklpedlaorg/wp/a/AccounLancyhLm

Account|ng Courses Cn||ne Can Cpen 1he Door 1o A New Career
O
O
O
O
O
AccounLlng courses onllne are a convenlenL way Lo earn your accounLlng degree become a CerLlfled
ubllc AccounLanL (CA) or learn a new sklll ?ou can enroll ln Lwo year programs LhaL wlll enable you
Lo enLer Lhe workforce as a clerk or you can earn a 8uslness degree and become an AccounLanL 1o
become a CA you musL earn your 8achelor's degree and Lhen pass Lhe unlform CA Lxam Cnce you
have done Lhls you wlll be able Lo work ln almosL any secLor of 8uslness of llnance AccounLlng courses
onllne can help you Lo achleve Lhls goal

1here are several accounLlng courses offered onllne ?ou can Lake free courses or slgn up for a
full degree program Some of Lhe courses avallable lnclude

lree AccounLlng Courses Cnllne

- AccounLlng 8aslcs 1hls course glves you a fundamenLal undersLandlng of accounLlng
prlnclples and pracLlces

- AccounLlng LquaLlon 1hls course helps you Lo undersLand Lhe relaLlonshlp beLween asseLs
llablllLles and equlLy

- AccounLlng rlnclples ?ou wlll galn an undersLandlng of Cenerally AccepLed AccounLlng
rlnclples (CAA) used ln 8uslness Loday

- ueblLs and CredlLs ln Lhls course you learn Lhe baslcs of a spreadsheeL and how deblLs and
credlLs relaLe

- 8ookkeeplng Learn how Lo keep books and undersLand ledger enLrles

- uepreclaLlon ln Lhls course you wlll undersLand how Lo flgure depreclaLlon and how Lo
accounL for lL
1hese are [usL some of Lhe few accounLlng courses onllne LhaL are offered free of charge 1hese
accounLlng courses onllne generally wlll noL counL Loward a degree buL Lhey can help you Lo
galn an undersLandlng of accounLlng prlnclples and help you Lo declde lf a career ln accounLlng
ls rlghL for you

8achelor uegree AccounLlng Courses Cnllne

- unlverslLy of hoenlx offers accounLlng courses onllne for a 8achelors of Sclence ln
AccounLlng

- llorlda 1ech unlverslLy offers 8achelor degree programs for 8achelor of ArLs ln AccounLlng
and 8achelor of ArLs ln 8uslness AdmlnlsLraLlon wlLh a SpeclallzaLlon ln AccounLlng

- unlverslLy of ,aryland offers accounLlng courses onllne LhaL you can Lake Lo earn a 8achelors
of Sclence ln AccounLlng and a 8achelors of Sclence ln llnance

- 8ryanL and SLraLon College's courses lnclude a 8achelors of Sclence ln llnanclal Servlces

- LlberLy unlverslLy offers accounLlng courses onllne LhaL lead Lo earnlng a 8achelor of Sclence
ln AccounLlng and a 8achelor of Sclence ln 8uslness and llnance

,asLers Level AccounLlng Courses Cnllne

- unlverslLy of hoenlx also has Lwo ,asLers rograms 1hey are ,asLers of 8uslness
AdmlnlsLraLlonAccounLlng and ,asLers of Sclence ln AccounLancy

- new Lngland College offers ,asLers level accounLlng courses onllne Lo earn your ,asLers of
Sclence ln AccounLlng and ,asLers of Sclence ln 8anklng and llnanclal ,anagemenL

- SLeLson unlverslLy offers a ,asLers ln Sclence ln AccounLlng Lhrough Lhelr accounLlng courses
onllne

- SLrayer unlverslLy offers flve ,asLers rograms ln accounLlng 1hese lnclude ,asLer of
8uslness AdmlnlsLraLlon AccounLlng ConcenLraLlon ,asLer of 8uslness AdmlnlsLraLlon llnance
ConcenLraLlon ,asLer of Sclence ln AccounLlng AccounLlng lnformaLlon SysLems
ConcenLraLlon ,asLer of Sclence ln AccounLlng ConLrollershlp ConcenLraLlon and ,asLer of
Sclence ln AccounLlng ubllc AccounLlng ConcenLraLlon

- Argosy unlverslLy has a ,asLers of 8uslness AdmlnlsLraLlon llnance onllne program

1aklng accounLlng courses onllne can be your flrsL sLep Loward a career ln accounLlng 1here are
programs LhaL wlll Leach you Lhe baslcs of accounLlng and programs LhaL wlll earn you a degree
and puL you on your way Lo becomlng a CA AccounLlng ls one of Lhe hoLLesL careers Loday lf
you en[oy worklng wlLh numbers and are lnLeresLed ln 8uslness a career ln AccounLlng could
be for you
hLLp//wwwaccounLancycoursesonllnecom/arLlcles/accounLlng_courses_onllne_can_open_Lh
e_door_Lo_a_new_careerhLml

1hlnklng of a Career ln AccounLancy?
O Accountancy

O Account|ng 1echn|c|ans AA1

O Lconom|cs

O Actuar|es

O Chartered Account|ng
O ,anagement Account|ng

O 1ax Accountancy
osLed on 08 nov 2003
J|th a|| the d|fferent accountancy qua||f|cat|ons to choose from |ts |mportant to research
the d|fferences between them A key factor to rea||se however |s that the d|fferent branches
of accountancy do po|nt to d|fferent career paths a|though they are a|| broad|y re|ated
Cpportun|t|es


Cpenlngs for accounLanLs ln lndusLry and commerce vary accordlng Lo Lhe slze of Lhe clLy and
Lend Lo be wlLh large organlsaLlons 1he demand for accounLanLs ln all secLors ls growlng and
work ls avallable ln all parLs of Lhe uk 1here aCre selfemploymenL opporLunlLles for
managemenL accounLanLs Lo become managemenL consulLanLs
Cnce quallfled lL ls posslble Lo move beLween prlvaLe pracLlce lndusLry and commerce and
Lhe prlvaLe secLor Lo galn experlence and help career prospecLs 1hose worklng for a large
organlsaLlon may be offered Lransfers wlLhln Lhe company Lo advance Lhelr careers 1here are
many openlngs for accounLanLs ln senlor managemenL poslLlons
Pere we have a brlef descrlpLlon of dlfferenL accounLanLs roles AL Lhe end of Lhe arLlcle Lhere
are some useful webslLe addresses and all Lhe professlonal bodles are very happy Lo glve Lo
help and lnformaLlon
CIIA Chartered Inst|tute of ub||c I|nance Accountants
CharLered publlc flnance accounLanLs work ln Lhe publlc servlces secLor and employers lnclude
local and naLlonal governmenL deparLmenLs local auLhorlLles healLh servlces eLc ubllc secLor
accounLanLs assess and conLrol Lhe efflclency of publlc spendlng 1hey can work ln local and
governmenL deparLmenLs audlL offlces houslng educaLlon and charlLable LrusLs 1helr alm ls Lo
geL value for money for any servlce offered Lo Lhe publlc wlLhln a seL budgeL
CI,A Chartered Inst|tute of ,anagement Accountants
CharLered managemenL accounLanLs normally work lnhouse as parL of Lhe managemenL Leam
Worklng ln lndusLry and commerce Lhey evaluaLe and glve advlce on Lhe flnanclal performance
of Lhe buslness Lhey work wlLhln Commonly known as managemenL accounLanLs Lhey provlde
flnanclal lnformaLlon Lo Lhe managemenL Leam and are lnvolved ln Lhe flnanclal plannlng of Lhe
organlsaLlon
ICALJ Inst|tute of Chartered Accountants of Lng|and and Ja|es
CharLered accounLanLs lnspecL assess and advlse on Lhe flnanclal sLaLe of affalrs of companles
parLnershlps and lndlvlduals 1hey work for accounLlng flrms and offer servlces Lo feepaylng
cllenLsmosLly ln Lhe lndusLrlal commerclal and charlLable secLors A key role for prlvaLe
pracLlce accounLanLs ls audlLlng AudlLs are lndependenL assessmenLs of Lhe flnanclal poslLlon
of a buslness AccounLanLs examlne Lhe company accounLs and collecL evldence Lo prepare and
Lhen presenL Lhelr recommendaLlons for lmprovemenL ouLllnlng Lhe rlsks and consequences of
currenL flnanclal pracLlces
ACCA Assoc|at|on of Chartered Cert|f|ed Accountants
CharLered CerLlfled AccounLanLs work ln boLh lndusLry and prlvaLe pracLlce ACCA Lralnlng
provldes sLudenLs wlLh an lndepLh knowledge of accounLlng Lechnlques buslness prlnclples
managemenL and l1 skllls all of whlch enable ACCA quallfled accounLanLs Lo work ln any area of
flnance LhroughouL Lhe world ?ou have Lhe freedom Lo galn your work experlence ln prlvaLe
pracLlce or ln Lhe publlc or corporaLe secLors and are able Lo change boLh employer and secLor
should you deslre a broader base of experlence

1h|nk|ng of a Career |n Accountancy?

WlLh all Lhe dlfferenL accounLancy quallflcaLlons Lo choose from lLs lmporLanL Lo research Lhe
dlfferences beLween Lhem A key facLor Lo reallse however ls LhaL Lhe dlfferenL branches of
accounLancy do polnL Lo dlfferenL career paLhs alLhough Lhey are all broadly relaLed
CpporLunlLles
Cpenlngs for accounLanLs ln lndusLry and commerce vary accordlng Lo Lhe slze of Lhe clLy and
Lend Lo be wlLh large organlsaLlons 1he demand for accounLanLs ln all secLors ls growlng and
work ls avallable ln all parLs of Lhe uk 1here aCre selfemploymenL opporLunlLles for
managemenL accounLanLs Lo become managemenL consulLanLs
Cnce quallfled lL ls posslble Lo move beLween prlvaLe pracLlce lndusLry and commerce and
Lhe prlvaLe secLor Lo galn experlence and help career prospecLs 1hose worklng for a large
organlsaLlon may be offered Lransfers wlLhln Lhe company Lo advance Lhelr careers 1here are
many openlngs for accounLanLs ln senlor managemenL poslLlons
Pere we have a brlef descrlpLlon of dlfferenL accounLanLs roles AL Lhe end of Lhe arLlcle Lhere
are some useful webslLe addresses and all Lhe professlonal bodles are very happy Lo glve Lo
help and lnformaLlon
CIIA Chartered Inst|tute of ub||c I|nance Accountants
CharLered publlc flnance accounLanLs work ln Lhe publlc servlces secLor and employers lnclude
local and naLlonal governmenL deparLmenLs local auLhorlLles healLh servlces eLc ubllc secLor
accounLanLs assess and conLrol Lhe efflclency of publlc spendlng 1hey can work ln local and
governmenL deparLmenLs audlL offlces houslng educaLlon and charlLable LrusLs 1helr alm ls Lo
geL value for money for any servlce offered Lo Lhe publlc wlLhln a seL budgeL
CI,A Chartered Inst|tute of ,anagement Accountants
CharLered managemenL accounLanLs normally work lnhouse as parL of Lhe managemenL Leam
Worklng ln lndusLry and commerce Lhey evaluaLe and glve advlce on Lhe flnanclal performance
of Lhe buslness Lhey work wlLhln Commonly known as managemenL accounLanLs Lhey provlde
flnanclal lnformaLlon Lo Lhe managemenL Leam and are lnvolved ln Lhe flnanclal plannlng of Lhe
organlsaLlon
ICALJ Inst|tute of Chartered Accountants of Lng|and and Ja|es
CharLered accounLanLs lnspecL assess and advlse on Lhe flnanclal sLaLe of affalrs of companles
parLnershlps and lndlvlduals 1hey work for accounLlng flrms and offer servlces Lo feepaylng
cllenLsmosLly ln Lhe lndusLrlal commerclal and charlLable secLors A key role for prlvaLe
pracLlce accounLanLs ls audlLlng AudlLs are lndependenL assessmenLs of Lhe flnanclal poslLlon
of a buslness AccounLanLs examlne Lhe company accounLs and collecL evldence Lo prepare and
Lhen presenL Lhelr recommendaLlons for lmprovemenL ouLllnlng Lhe rlsks and consequences of
currenL flnanclal pracLlces
ACCA Assoc|at|on of Chartered Cert|f|ed Accountants
CharLered CerLlfled AccounLanLs work ln boLh lndusLry and prlvaLe pracLlce ACCA Lralnlng
provldes sLudenLs wlLh an lndepLh knowledge of accounLlng Lechnlques buslness prlnclples
managemenL and l1 skllls all of whlch enable ACCA quallfled accounLanLs Lo work ln any area of
flnance LhroughouL Lhe world ?ou have Lhe freedom Lo galn your work experlence ln prlvaLe
pracLlce or ln Lhe publlc or corporaLe secLors and are able Lo change boLh employer and secLor
should you deslre a broader base of experlence
Do I need a maths re|ated degree to become a chartered accountant?
AccounLancy pracLlces Lake on graduaLes from all dlsclpllne so an accounLancy degree ls noL a
prerequlslLe however sLrong academlc quallflcaLlons usually are especlally helpful lf you are
applylng for Lhe 8lg 4 flrms
?ou wlll also need good Lngllsh and maLhs CCSL grades and skllls ln anoLher Luropean language
are always aLLracLlve Lmployers ln Lhls secLor wlll also seek sLrong numeraLe candldaLes who
are amblLlous analyLlcal loglcal paLlenL perslsLenL and are prepared Lo spend long hours
sLudylng and worklng Check Lhe webslLes of Lhe professlonal bodles above for more ln depLh
lnformaLlon on Lhe dlfferenL quallflcaLlons
Chartered Inst|tute of ub||c I|nance Accountants
hLLp//geLsmaarLcom/sLudenLguldes/coursecareerarLlcles/LhlnklngcareeraccounLancy

Pome AccounLancy Courses
lf youre looklng Lo enhance your skllls ln Lhe fleld of accounLlng lL can be dlfflculL Lo declde
whlch rouLe Lo Lake as Lhere are a wlde range of dlfferenL courses avallable for dlfferenL roles
lf youre someone who owns Lhelr own buslness you may already conLracL bookkeeplng work
Lo a professlonal Powever lL can sLlll be beneflclal Lo have a good undersLandlng of Lhe baslcs
of bookkeeplng Lo help you keep on Lop of Lhlngs for yourself 1he lnLermedlaLe (Level 2)
course ln racLlcal 8ookkeeplng can be ldeal lf youre ln Lhls poslLlon as lL provldes a groundlng
ln Lhe double enLry sLandard procedure recordlng of lncome and expendlLure credlL conLrol
and dlscounLlng day books IA1 depreclaLlon ad[usLmenLs and oLher general prlnclples
8ecause Lhls course ls accredlLed by Lhe lnsLlLuLe of CerLlfled 8ookkeepers (lC8) Lhls course ls
also popular wlLh Lhose who are employed ln an accounLanLs flrm or work ln Lhe accounLs
offlce of a buslness or publlc body An lC8 quallflcaLlon ls a recognlsed parL of a career ln Lhe
flnanclal secLor and Lhe lC8 ls Lhe worlds largesL bookkeeplng body wlLh over one hundred
and flfLy Lhousand members worldwlde 1he lnLermedlaLe quallflcaLlon can also be bullL upon
and developed by Laklng an advanced level course whlch enLlLles Lhose who successfully pass
Lhe exam Lo Lhe Level 3 lC8 ulploma ln ,anual 8ook keeplng 1hls course lnLroduces Loplcs
such as sLock conLrol daLa proLecLlon dlsposal of flxed asseLs lncompleLe records as well as
dlfferenL company Lypes all of whlch lead on from Lhe Level 2 knowledge

lor people who work wlLh bookkeeplng or would llke Lo buL who do noL requlre such a full
knowledge of Lhe prlnclples behlnd bookkeeplng a pracLlcal course on Sage lnsLanL
8ookkeeplng ls avallable 1hls ls Lhe sofLware LhaL ls used by over 300000 companles ln Lhe uk
alone and covers enLerlng cusLomer and supply lnformaLlon updaLlng and malnLalnlng IA1
lnformaLlon edlLlng Lhe ledger banklng and lnvolclng procedures and enLerlng lncome and
ouLgolngs WhllsL Lhls ls especlally useful when comblned wlLh an lC8 quallflcaLlon no prlor
knowledge ls necessary and ls parLlcularly useful for people wlLh general admlnlsLraLlon or
offlce experlence Lo enLer Lhe accounLs fleld Slmllarly Lhere ls a course avallable for Lhe Sage
lnsLanL ayroll course whlch can help people looklng for a career lnvolvlng employee flles
salarles 1ax naLlonal lnsurance Polldays penslons and so on 1hls funcLlon ls ofLen handled by
Puman 8esources ueparLmenLs and Lherefore Lhls course provldes an opporLunlLy for people
worklng ln Lhls area Lo move across lnLo someLhlng new or for a Sage accredlLed quallflcaLlon
Lo prove Lhelr ablllLy lor Lhose looklng Lowards charLered sLaLus ln Lhe years ahead Lhe AA1
(AssoclaLlon of AccounLlng 1echnlclans) courses on offer are recognlsed as an excellenL sLarLlng
polnL wlLhouL requlrlng a degree 1here ls a Level 2 and a Level 3 course avallable allowlng you
Lo gradually bulld your knowledge 1hese courses allow you Lo become quallfled as an
accounLlng Lechnlclan followlng whlch you can galn exempLlon from some of Lhe requlremenLs
Lo become a charLered accounLanL wlLh Cl,A ACCA CllA lCAS and lCALW alLhough Lhe skllls
Lhe courses Lhemselves provlde ln boLh paper based and compuLerlsed accounLlng wlll be
beneflclal Lo a sLudenLs career and demonsLraLe ablllLy and commlLmenL Lo an employer

`
Jhat caused the recess|on? 1he bank|ng cr|s|s
osLed on August 11 2011
1
1he global flnanclal crlsls ln 20072008 was caused noL by one slngular facLor buL
raLher as a resulL of Lhe aggregaLe effecL of many dlfferenL clrcumsLances
1hls posL l wlll examlne Lhe plvoLal declslons and clrcumsLances whlch lead Lo
Lhe collapse of Lhe houslng markeL ln 2007 lL wlll also conslder how Lhe
houslng markeL was lnLerLwlned wlLh securlLlsaLlon and Lhe lmpllcaLlons caused
by lax rlsk managemenL and poor undersLandlng of securlLlsaLlon ln banklng
llnally lL wlll observe Lhe lmpllcaLlons of new regulaLory reforms deslgned Lo
reduce Lhe probablllLy of a slmllar crlsls reoccurrlng
1he slngle mosL subsLanLlal evenL whlch leads Lo Lhe flnanclal crlsls of 20072008
was Lhe collapse ln house prlces ln Lhe uS ln 2007 1hls dld noL happen of lLs
own accord Lhere were many elemenLs LhaL lead Lo Lhe fall ln properLy prlces lf you conslder
Lhe houslng markeL ln Lhe uS hlsLorlcally house prlces had sLayed conslsLenL 1933 Lo 1993
when accounLlng for lnflaLlon (8aker 2008) Powever from 19932002 house prlces had rlsen
30 percenL above lnflaLlon (8aker 2008) 1hls was Lhen only compounded by Lhe low lnLeresL
raLes of Lhe early 2000rs broughL on by a uS governmenL Lrylng Lo resLlmulaLe Lhe economy
afLer Lhe recesslon caused by Lhe end of Lhe lnLerneL drlven boom ,orLgage raLes followed Lhe
Lrend of lnLeresLraLe and dlpped Lo a 30 year low (8aker 2008) Lhese were Lhen coupled wlLh
new zero or low equlLy morLgages LhaL banks were able Lo offer 1hls ls especlally afLer LlghLer
resLrlcLlons on lannle ,ae and lreddle ,ac allowed banks a greaLer opporLunlLy ln Lhe
morLgage markeL (8lundellWlgnall eL al 2008) Lower morLgages raLes and no deposlL requlred
meanL Lhere was a serge ln subprlme morLgages
1he surge ln Lhe subprlme morLgages came from flrsL Llme buyers
and Lhose unable Lo geL morLgages before who were looklng Lo Laklng advanLage
of Lhe opporLunlLy Lo geL lnLo Lhe properLy markeL unforLunaLely wlLh Lhe
lnflux of new poLenLlal cusLomers mlsLakes were made boLh sldes 8anks
offerlng morLgages ofLen relaxed Lhelr veLLlng procedures for new morLgages
Lhls was Laken advanLage of by many as flgures suggesL LhaL up Lo 70 percenL of
all defaulLed subprlme morLgages had mlslnformaLlon on Lhe appllcaLlon (8lanco
2008 pp10) 1hls was a serlous error from Lhe banks how can a bank Lruly
undersLand Lhe credlL rlsk lL ls underLaklng lf Lhe lnformaLlon lL ls uslng Lo
make Lhe declslon ls wrong? 8anks relaxlng Lhelr veLLlng for appllcaLlons shows Lhelr greed for
shorL Lerm galns
1he overvalued houslng prlces could noL be susLalned and wlLh 17
lnLeresL raLe rlses beLween 2004 and 2006 from 1 percenL Lo 323 percenL Lhe
houslng markeL was undermlned and morLgage raLes ralsed Lo maLch lnLeresL raLes
causlng house prlces Lo drop on average 13 percenL by Lhe end of 2007 wlLh many
experlenclng over 20 percenL drop (8lanco 2008 pp3) (8aker 2008) 1he
ralslng ln Lhe morLgage raLes caused Lhe flrsL wave of defaulLs as varlable
raLe morLgage defaulLed aL Lhe hlgher raLe LaLer on more defaulLs were caused
as people wlLh zero or low equlLy morLgages saw Lhey owed more Lhan Lhe value
of Lhelr house and so lL made sense for Lhem Lo defaulL
Alan Creenspan Lhe former Chalrman of Lhe lederal 8eserve
acknowledges LhaL he dld noL spoL Lhe houslng markeL over valuaLlon unLll Loo
laLe even Lhough Lhere was a loL Lo daLa Lo suggesL Lhe houslng markeL was overvalued
(8aker 2008) (8lanco 2008 pp3) 1he reason LhaL Creenspan and oLhers mlghL
noL have seen Lhe problem ls because Lhe Lheory abouL flnanclal markeLs ls LhaL
Lhey are efflclenL and markeL values should reflecL all posslble lnformaLlon
avallable Also LhaL even lf markeLs are noL efflclenL lL ls dlfflculL Lo
know how much by and so markeL lnLervenLlon ls noL posslble (1urner 2009)
1hls means lL ls very hard Lo calculaLe Lhe markeL rlsk when valulng a
morLgage lnvarlably banks dld noL accommodaLe sufflclenLly for Lhe real markeL
rlsk
1he crash of Lhe houslng markeL ln Lhe uS lLself would noL usually
cause a global flnanclal crlsls lL was Lhe facL LhaL banks had Lled LogeLher
and sold off Lhese morLgages all over Lhe world ln Lhe form of morLgage backed
securlLles (,8S) LhaL lead Lo Lhe crlsls (8lanco 2008 pp8) 1he aLLracLlon of
Lhese morLgage backed securlLles for banks holdlng subprlme morLgages ls LhaL
Lhey could repackage Lhem lnLo ,8S and sell Lhem wlLh ofLen hlgh lnvesLmenL
grade raLlngs Lhus Lransferrlng Lhelr rlsk ,any companles lncludlng many
banks and Lhen boughL Lhem based on Lhe credlL agency raLlngs 1hese
securlLles Lhen dropped ln value when Lhe houslng markeL decllned and defaulL
levels cllmbed 1hls lefL many banks wlLh loLs of Loxlc asseLs on Lhe balance
sheeLs lowerlng Lhe LoLal value of Lhelr asseLs
1he loss ln asseL value lead Lo real llquldlLy lssues wlLhln Lhe
banks for a couple of reasons flrsLly securlLles were no longer readlly
avallable Lo Lurn lnLo llquldlLy as Lhelr value had fallen and very few people
were wllllng Lo Lrade for Lhem LlquldlLy also qulckly became an lssue because
Lhe subprlme morLgage crlsls and Lhe drop ln Lhe value of morLgaged based
securlLles had led banks Lo sLop lendlng money due Lo lacklng LrusL ln oLher
banks 1hls ralsed Lhe lnLeresL raLes wlLhln Lhe wholesale markeLs for lnLerbank
lendlng Lhls belng a key markeL Lo galn flnance and avallable cheap llquldlLy
A good example of Lhls llquldlLy problem ls norLhern 8ock who borrowed hlgher
Lhan average amounLs from Lhe wholesale markeL and had money ln securlLles and
could noL ralse Lhe llquldlLy Lo pay of loans and had Lo be balled ouL by Lhe
8ank of Lngland 1hls hlghllghLs how Lhe problem spread across from Lhe uS and
shows Lhe rlsks of excesslve leverage (8lngshaw and SmlLh 2007) (Carmassl eL
al 2009)
uesplLe havlng Lo be balled ouL norLhern 8ock were publlcly
declared solvenL 1hey had Lhe asseLs Lo exceed Lhe repaymenLs needed buL lL
was Lhelr focus on solvency over llquldlLy whlch was Lhe maln downfall 1hls ls
Lhe case ln many of Lhe banklng fallures companles falled Lo have an adequaLe
caplLal base Lo accounL for Lhe rlsks lL was Laklng(8lS 2008 pp1)
1here were numerous reasons why banks ran Lhls llquldlLy rlsk
llrsLly some banks had lnadequaLe llquldlLy rlsk managemenL procedures 1hey
dld noL do relevanL sLress LesLlng regardlng Lhelr asseLs and Lhey dld noL
plauslbly see severe or elongaLed perlods where llquldlLy would be dlfflculL Lo
obLaln (8lS 2008 pp1) Also asseLs were lnadequaLely measured flrsLly
credlL raLlng agencles over raLed securlLles wlLhouL fully undersLandlng Lhe
complexlLles of Lhem meanlng LhaL buyers of Lhese well raLed asseLs were
poLenLlally buylng someLhlng a loL more volaLlle Lhan suggesLed (8lanco 2008
pp9) Secondly 8anks Lhemselves used a sophlsLlcaLed maLhemaLlcal Lool called
Ialue aL 8lsk (Ia8) Lo raLe Lhe rlsk on a securlLy Ia8 ls an accepLed meLhod
of valuaLlon by regulaLors for Lhe rlsk and welghLlng of caplLal needed for an
lnvesLmenL 1he blggesL flaw wlLh Ia8 ls LhaL lL uses shorL Lerm daLa noL daLa over a whole
producL cycle Lhls mean LhaL ln good Llmes lL under esLlmaLes rlsks and ln bad Llmes lL over
esLlmaLes rlsk 1hls leads Lo a procycllcallLy whlch only goes Lo escalaLe problems when Llmes
are bad (1urner 2009 pp22) (8lundellWlgnall ALklnson 2010 pp3) ln hlndslghL uslng Lhe
Ia8 model Lhe way banks dld could be consldered Lhe
greaLesL operaLlonal rlsk of Lhe flnanclal crlsls
1he facL LhaL Lhe flnanclal crlsls happened Lo Lhe exLenL of whlch
lL dld shows Lhere were flaws ln Lhe regulaLlons such as 8asel ll new
regulaLlons are belng drawn up Lo Lry and learn from Lhe mlsLakes ensurlng lL
does noL happen agaln
Cne of Lhe flrsL responses LhaL have already come lnLo force ls Lu
regulaLlon on bankers bonuses 1hls regulaLlon wlll llmlL bonuses so only 2030
percenL ls pald ln cash sLralghL away wlLh Lhe resL belng pald ln shares or
ln 33 years Llme WhaL Lhls hopes Lo achleve ls a shlfL ln Lhe shorL Lerm
culLure so LhaL long Lerm galns are Lhe alm of bankers (88C 2010) 1hls wlll
reduce Lhe procycllcallLy of uslng shorL Lerm measuremenL Lools such as Ia8 as
you wlll look aL longer perlods and more of a producLs cycle Longer Lerm
lnvesLmenLs also Lend Lo have lower credlL rlsks lmpllcaLlons of Lhls
regulaLlon Lhough are LhaL lL may cause bankers Lo leave banks wlLhln Lu naLlons for counLrles
wlLh more favourable bonuses such as SwlLzerland Also lf bonuses are lover aLLracLlng bankers
Lo Lhe professlon wlLh geL harder
As well as Lu regulaLlons Lhere ls a new 8asel lll Accord belng
drawn up 1he maln alm of Lhls ls Lo propose a new approach Lo caplLal ln
banklng (8lundellWlgnall and ALklnson 2010 pp9)
llrsLly lL wlll look aL core caplLal levels seLLlng Ller 1 and Ller 2 caplLal levels for rlsk welghLed
asseLs 1ler one wlll be malnly common shares and reLalned earnlngs and wlll be requlred Lo
rlse Lo 6 percenL by 2019 (8lundellWlgnall and ALklnson 2010 pp9)
Secondly Lhere wlll be a sLronger guldellne on rlsk managemenL
for rlsk welghLed asseLs Lnabllng companles have a greaLer undersLandlng and
guldance on credlL rlsk of asseLs (8lundellWlgnall and ALklnson 2010 pp9)
1hlrdly Lhere wlll be Lhe use of a leverage raLlo Lhls ls ln
place Lo sLop excess bulld up of leverage ln Lhe flnanclal sysLem(WalLer
2010)
llnally procycllcallLy wlll be addressed lL ls suggesLlng banks
hold buffers above Lhe mlnlmum requlremenLs as Lo proLecL agalnsL down Lurns ln
Lhe economy 1he buffer would be parL of a sysLem whlch rose and fell dependlng
on wheLher growLh was seen Lo be excesslve so lL would acL as counLercycllcal
(8lundellWlgnall and ALklnson 2010 pp10)
1hese ln Lheory make perfecL sense as a soluLlon Lo Lhe crlsls as
ln 2008 a survey polnLed ouL LhaL credlL rlsk and llquldlLy were Lhe Lwo maln
concerns ln banklng (Lascelles 2008) 1he hlgher caplLal requlremenLs are Lo
help ln case of lncreased credlL rlsk and Lo make sure Lhere ls always
llquldlLy 1he declslon Lo lncreaslng Lhe caplLal base ls also backed up as
companles wlLh hlgher caplLal base saw greaLer sLock performance durlng Lhe
recesslon (uemlrgukunL eL al 2010) llnally ln a small survey of Lop banks
lL can be seen LhaL Lhere ls a Lrend for banks who have beLLer rlsk managemenL
approach such as sharlng quallLaLlve and quanLlLaLlve daLa well wlLhln Lhe
company and more crlLlcal [udgemenL of lLs holdlng Lended Lo do beLLer durlng a
crlsls(Senlor Supervlsors Croup 2008)
8asel lll also has adverse lmpllcaLlons Lhe hlgher equlLy demands
on companles could mean Lhey wlll have Lo work harder Lo make proflLs and ln
facL Lhls could lead Lo more rlsks belng Laken Lo Lry and achleve proflLs
(1rlana 2010) 8anks ln Lhe uS also look Lo have a shorLfall ln avallable
equlLy of a comblned $100bn (,asLers 8aer 2010) 1o ralse Lhls equlLy a
loL of asseLs mlghL have Lo be sold compromlslng Lhe ablllLy for banks Lo make
proflLs whlch are essenLlal Lo resLore Lhe lndusLry afLer Lhe crlsls 8asel
lll makes lL even harder for emerglng economles Lo compeLe as Lhey need fasL
growLh Lo help supporL Lhelr lncreaslng populaLlons buL Lhe 8asel lll accord would
sLunL LhaL growLh wlLh requlremenLs on caplLal (1aylor 2010) llnally
worldwlde collaboraLlon beLween naLlons ls needed especlally ln Llmes of
crlsls 1hls can be hard Lo achleve auLomaLlcally and ofLen very Llme consumlng
(auly 2011)
ln concluslon Lhe flnanclal crlsls was caused by Lhe unforeseen
markeL rlsks ln Lhe houslng markeL LhaL lead Lo credlL rlsks when valulng
morLgage based securlLles When morLgages defaulLed as Lhe houslng markeL
decllne banks asseLs such as securlLlsaLlons decreased and llquldlLy drled up
leavlng banks unable Lo pay debLs 1he new proposed 8asel lll accord does go
some way Lo ensurlng LhaL a slmllar scale crlsls should noL happen as
counLercycllcal buffers should make banklng more conslsLenL greaLer rlsk managemenL
emphasls should see LhaL banks have a beLLer undersLandlng of Lhelr asseLs and Lhelr lnherenL
rlsks Also lL lmproves Lransparency meanlng over valuaLlons ln markeLs should happen less and
be smaller 1hls coupled wlLh Lu regulaLlon Lo
Lry and counLeracL Lhe shorL slghLedness of banklng means reLurns ln Lhe long
run should be beLLer Lven wlLh new regulaLlon lf Lhere ls sLlll no sLrong
valuaLlon meLhod for complex securlLles and derlvaLlves Lhere ls always a
chance of Lhe problem repeaLlng lLself maybe [usL noL on Lhe same scale
hLLp//accounLlngdeflnlLlonsneL/accounLlngblog/