Ezelda Swanepoel

Increasingly, in the last decade, largely due to perceived greater shareholder pressures for more profitable performance, compensation maximization has taken center stage in some segments of the banking industry. Banks need to establish board governance committees with explicit responsibilities to monitor corporate ethics and culture. This paper aims to measure the correlation between dire economic conditions, competition, banking profitability, and misconduct. This is done by means of GDP comparisons to determine economic conditions, calculating z-scores to determine bank risk taking, and analysis of variance of return on assets, return on equity and z-scores, to determine profitability, and fines comparisons to determine misconduct. Analysis finds that dire economic conditions may lead to increased competition, increased competition may lead to increased risk taking, increased risk taking may have an impact on a bank’s financial performance, and decreased financial performance may lead to increase in misconduct.

Keywords: banking competition, banking behavior, economic conditions.
JEL Classification: C21, G01, G21, G32

The banking industry plays a significant role in both the financial system and economy as a whole. By 2012, the US banking system owned US $14.45 trillion in assets. However, the importance of the banking system stretches beyond its mere size. Numerous studies have indicated that the health of this sector has significant effects on overall economic activity, as well as the size and persistence of economic cycles. For the purposes of this paper, the researchers measured the correlation between current legislation, risk-taking, market value, and reputation. This was performed by calcula-ting Z-scores to determine bank risk-taking. The Z-scores were correlated to market value to determine its impact. Reputable firm behavior was used to determine the correlation between market value and reputation. The statistical package for Social Sciences was used to perform ANOVA analysis of share value and Z-scores. A literature review was conducted to determine the reputational impact. It was determined that current legislation might have a desired result on risk-taking, that risk-taking might not have an impact on market value, and that reputation might have an impact on market value.

Keywords: reputation, banking industry, financial system, economic activity, Z-scores, legislation, risk-taking.
JEL Classification: C21, G18, G21, G32, G38, K23

US household debt increased on a yearly basis from 1987 to 2007. In addition, household debt in the USA nearly doubled between 2000 and 2007, from $5.6 trillion to $9 trillion. This came to an abrupt end in 2009 with the crash of the financial market. This paper employs the bound test and Auto-regressive Distributed Lag Model to determine the long-run relationship between US household debt and consumer prices, housing prices, the unemployment rate, and the lending rate. Unit root tests were conducted first to ascertain the stationarity of the variables. E-views 11 was used in the analysis of the data, which was obtained from Q1: 1990 to Q1: 2007 from the International Monetary Fund and the US FED. It was found that in the long run, there is a negative effect of consumer prices and unemployment on US household debt, while house prices and the lending rate would have a positive effect on household debt.