Has the housing boom increased mortgage risk?

Adjustable rate mortgages

Auditing the auditors: oversight or overkill?

A growing number of high-profile companies have had to restate their earnings at substantially lower levels to correct the prior use of "aggressive" and even fraudulent accounting practices. Because the companies’ auditors approved the original reports, policymakers have questioned the capacity of public accounting firms to promote fair financial reporting. In response, recent legislation has instituted several reforms, including the creation of the Public Company Accounting Oversight Board, which together with the Securities and Exchange Commission will investigate alleged lapses in accounting practices. But how much oversight is really necessary? Jeffery Gunther and Robert Moore examine recent events in the light of research findings. Based on this analysis, they conclude that market forces have tended, over time, to shape the role of auditors to match or correspond to the needs of investors in monitoring individual companies’ performance. Despite current sentiment to the contrary, substantial government involvement in the business of auditing appears to be needed only when other types of government intervention, such as bank deposit insurance, have already disrupted market-based incentives for effective audits. In the more typical situation, both government and industry policymakers should avoid restrictive measures that unnecessarily increase audit costs, instead taking into account market forces’ successful track record in disciplining ineffective auditors and promoting an effective audit function.>Securities and Exchange Commission ; Accounting

Financial statements and reality: do troubled banks tell all?

Each quarter, banks file a call report, or Report of Condition and Income, containing hundreds of accounting items pertaining to their financial condition. This article analyzes call report revisions to assess the extent to which regulatory exams promote accurate data. The findings indicate banks with new or emerging difficulties often significantly underreport these problems, intentionally or not. In addition, the findings point to a significant role for exams in uncovering financial problems and ensuring bank accounting statements reflect them. To the extent the loan-loss accounting in call reports is widely used to assess loan quality, these results support the view that exams are important in the public dissemination of accurate information on banks' financial condition.

Early warning models in real time

Each quarter, banks file a call report, or Report of Condition and Income, containing hundreds of accounting items pertaining to their financial condition. Because call reports are filed quarterly, whereas banks are typically examined about once every twelve to eighteen months, statistical early warning models using call report data potentially provide a more up-to-date picture of a bank's condition than on-site exams alone. Often neglected, however, is the fact that call report data are subject to revision. We find evidence of a strong relationship between on-site exams and call report revisions. In addition, we evaluate a major class of early warning models using both originally published and revised data to assess whether model accuracy in real time is appreciably lower than accuracy measured using revised data. The findings indicate revised data overstate the accuracy of early warning models. The substantial effect of revisions on the accuracy of early warning models, coupled with the finding of a relationship between revisions and exams, points to a substantial auditing role for on-site exams. More generally, our findings point to the need for care in the use of call report data for research in which the real-time flow of financial information is of some concern.Econometrics ; Banks and banking - Accounting ; Bank supervision

How can Health Behavior Theory be made more useful for intervention research?

BACKGROUND: The present paper expresses the author's views about the practical utility of Health Behavior Theory for health behavior intervention research. The views are skeptical and perhaps even a bit exaggerated. They are, however, also based on 20-plus years of in-the-trenches research focused on improving health behavior practice through research. DISCUSSION: The author's research has been theoretically driven and has involved measurement of varying variables considered to be important theoretical mediators and moderators of health behavior. Regretfully, much of this work has found these variables wanting in basic scientific merit. Health Behavior Theory as we have known it over the last 25 years or so has been dominated by conceptualizations of behavior change processes that highlight cognitive decision-making. Although much of health behavior practice targets what people do rather than what they think, the logic of focusing on thoughts is that what people think about is the key to what they will do in the future, and that interventions that can measure and harness those processes will succeed to a greater extent than those that do not. Unfortunately, in the author's experience, the premise of cognitive theories has fallen short empirically in a number of ways. The cognitive schemata favored by most health behavior theories are difficult to measure, they do not predict behavioral outcomes very well, there is little evidence that they cause behavior, and they are hard to change directly. SUMMARY: It is suggested that health behavior researchers reconsider their use of these theories in favor of models whose variables are more accessible to observation and experimental manipulation and that most importantly have strong empirical support

Behavior and weight correlates of weight-control efforts in Australian women living in disadvantage : the READI study

BackgroundWith increasing obesity rates worldwide, more and more people are actively attempting to lose weight or avoid weight gain, but relatively little is known about what specific behaviors comprise these efforts and which, if any, are associated with better weight control over time.MethodsThis paper reports relationships between body weight, weight-control efforts and related behaviors over a three-year period in 1,634 Australian women. The women were purposefully recruited from 80 disadvantaged neighborhoods in Victoria, Australia. Weight loss efforts were categorized as trying to lose weight, trying to prevent weight gain and no weight-control efforts. Behavioral correlates examined included different kinds of physical activity and consumption of a number of specific foods types.Results and discussionSelf-reported body weight at baseline was higher in women trying to lose weight. Frequency of consumption of low energy density foods was positively associated with reported weight-control efforts, as was frequency of reported total and leisure-time physical activity. Longitudinal associations between changes in weight-control efforts and changes in behaviors were consistent with the cross-sectional findings. At three-year follow up, however, weight-control efforts were not associated with change in body weight. More detailed analyses of specific food choices suggested that part of the explanation of no effect of reported weight-control efforts and weight over time might be that people are not as well-informed as they should be about the energy density of some common foods. In particular, those reporting engagement in weight-control efforts reported reducing consumption of carbohydrate-containing foods such as bread and potatoes more than is justified by their energy content, while they reported increasing consumption of some high energy density foods (e.g., cheese and nuts).ConclusionIt is tentatively concluded that women living in disadvantaged neighborhoods understand messages about weight-control (more activity and foods with lower fat and lower energy density) but that some foods eaten more by women engaged in weight control may reduce the effectiveness of these efforts.<br /

Universal access, cost recovery, and payment services

We suggest a subtle, yet far- reaching, tension in the objectives specified by the Monetary Control Act of 1980 (MCA) for the Federal Reserve’s role in providing retail payment services, such as check processing. Specifically, we argue that the requirement of an overall cost-revenue match, coupled with the goal of ensuring equitable access on a universal basis, partially shifted the burden of cost recovery from high-cost to low-cost service points during the MCA’s early years, thereby allowing private-sector competitors to enter the low-cost segment of the market and undercut the relatively uniform prices charged by the Fed. To illustrate this conflict, we develop a voter model for what begins as a monopoly setting in which a regulatory regime that establishes a uniform price irrespective of cost differences, and restricts total profits to zero, initially dominates through majority rule both deregulation and regulation that sets price equal to cost on a bank-by-bank basis. Uniform pricing is dropped in this model once cream skimming has subsumed half the market. These results help illumine the Federal Reserve’s experience in retail payments under the MCA, particularly the movement over time to a less uniform fee structure for check processing.Payment systems ; Check collection systems

Can the stock market tell bank supervisors anything they don't already know?

This article provides evidence consistent with recent policy proposals calling for a greater role for market forces in promoting a safe and sound financial system. The authors' empirical results indicate a measure of expected default probability distilled from equity prices helps predict the financial condition of individual banking organizations, as reflected in their supervisory ratings. Moreover, the stock market data have predictive power over and above the information in the quarterly financial statements available to supervisors between inspections. These findings suggest financial markets can provide useful information to supplement supervisory assessments, particularly between inspections, and point to the value of additional research to further clarify the information content of market prices and quantities.Banks and banking ; Bank examination ; Bank supervision

Predictors of vigorous exercise adoption and maintenance over four years in a community sample

BACKGROUND: Very little is known about the correlates of adoption and maintenance of vigorous exercise. The purpose of this study was to understand the sociodemographic correlates of exercise adoption and maintenance in a community sample. METHODS: 917 women and 229 men completed annual surveys as part of a community-based weight gain prevention trial over four years. Multivariate regressions evaluated predictive factors for maintenance of vigorous exercise over time in regular exercisers, and predictors of adoption of exercise in adults who were sedentary at baseline. RESULTS: Exercise maintenance at Years 2 and 3 was associated with ethnicity and exercise level at baseline, while exercise maintenance at Year 4 was associated with television watching, BMI and exercise at baseline. Exercise level at baseline was associated with exercise initiation at Year 2 and Year 3. Income level, marital status, and smoking status predicted exercise initiation at Year 4. CONCLUSIONS: Predictors of vigorous exercise maintenance were more consistent than predictors of vigorous exercise initiation. Results suggest that those who adopt vigorous exercise are a heterogeneous group and intervention messages could be more broadly focused. These data also suggest that exercise maintenance interventions should continue to target low-income populations with messages regarding smoking, weight and television. Clearly further research is needed to understand the factors that contribute to exercise initiation and maintenance, and to develop effective interventions to improve levels of physical activity levels