Essay: Causes of Financial Crisis

Sample Essay

I would agree with the article in a way that the financial crisis was caused by inappropriate recording of assets by banks and financial institutions. Albeit banks and financial institutions blame fair value standards for the financial crisis we have to accept the fact that banks relied heavily on risky assets.

The significant decline in these assets which mostly included subprime mortgages was the real culprit of the financial crisis. The article points to rapid amendments in international standards as a negative sign but in my view due to complexity of fair value estimation and lack of interpretation and guidance by IASB, IAS 39 creates problems for users and preparers of financial statements rather than providing them with useful information. Therefore amendments are required in the standard on an urgent basis to resolve these issues and problems.

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