Accounting Discretion Of Banks During A Financial Crisis
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| Author | : Mr.Luc Laeven |
| Publisher | : International Monetary Fund |
| Total Pages | : 43 |
| Release | : 2009-09-01 |
| Genre | : Business & Economics |
| ISBN | : 1451873549 |
This paper shows that banks use accounting discretion to overstate the value of distressed assets. Banks' balance sheets overvalue real estate-related assets compared to the market value of these assets, especially during the U.S. mortgage crisis. Share prices of banks with large exposure to mortgage-backed securities also react favorably to recent changes in accounting rules that relax fair-value accounting, and these banks provision less for bad loans. Furthermore, distressed banks use discretion in the classification of mortgage-backed securities to inflate their books. Our results indicate that banks' balance sheets offer a distorted view of the financial health of the banks.
| Author | : Luc Laeven |
| Publisher | : |
| Total Pages | : |
| Release | : 2009 |
| Genre | : Electronic books |
| ISBN | : |
| Author | : Paul J. Beck |
| Publisher | : |
| Total Pages | : 52 |
| Release | : 2019 |
| Genre | : |
| ISBN | : |
Banks' use of accounting discretion in estimating loan loss provisions (LLPs) during the financial crisis has come under severe criticism. We argue, however, that it is during periods of instability like the financial crisis that accounting discretion is most relevant. We find that the discretionary component of LLPs exhibits dramatically stronger associations with contemporaneous stock returns and with subsequent realized loan losses during the crisis than in surrounding periods. We also find that discretionary LLPs are associated with the Treasury's allocation of TARP funds. Tests surrounding the TARP funding shock provided added validity to our empirical specifications. The significant beneficial role of discretion in LLPs during the financial crisis is especially important in light of the FASB's new accounting rules that are likely to alter the level of accounting discretion underlying these estimates.
| Author | : Lee J. Cohen |
| Publisher | : |
| Total Pages | : 44 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
We show that a pattern of earnings management in bank financial statements has little bearing on downside risk during quiet periods, but seems to have a big impact during a financial crisis. More aggressive earnings managers prior to 2007 exhibit substantially higher risk once the financial crisis begins. This risk is evident in both the incidence of large weekly stock price “crashes” as well as in the pattern of full-year returns. Consistent with the literature on earnings management and crash risk in industrial firms, these results support the hypothesis that banks can use accounting discretion to hide relevant information for some time, but in a period of severe distress in which accounting choices can no longer obscure performance, information comes out in larger amounts, resulting in substantially worse stock market returns. We also show that these stock price crashes predict future deterioration in operating performance, which is of greater direct relevance to regulators, and thus may serve as an early warning signal of impending problems.
| Author | : Financial Crisis Inquiry Commission |
| Publisher | : Cosimo, Inc. |
| Total Pages | : 692 |
| Release | : 2011-05-01 |
| Genre | : Political Science |
| ISBN | : 1616405414 |
The Financial Crisis Inquiry Report, published by the U.S. Government and the Financial Crisis Inquiry Commission in early 2011, is the official government report on the United States financial collapse and the review of major financial institutions that bankrupted and failed, or would have without help from the government. The commission and the report were implemented after Congress passed an act in 2009 to review and prevent fraudulent activity. The report details, among other things, the periods before, during, and after the crisis, what led up to it, and analyses of subprime mortgage lending, credit expansion and banking policies, the collapse of companies like Fannie Mae and Freddie Mac, and the federal bailouts of Lehman and AIG. It also discusses the aftermath of the fallout and our current state. This report should be of interest to anyone concerned about the financial situation in the U.S. and around the world.THE FINANCIAL CRISIS INQUIRY COMMISSION is an independent, bi-partisan, government-appointed panel of 10 people that was created to "examine the causes, domestic and global, of the current financial and economic crisis in the United States." It was established as part of the Fraud Enforcement and Recovery Act of 2009. The commission consisted of private citizens with expertise in economics and finance, banking, housing, market regulation, and consumer protection. They examined and reported on "the collapse of major financial institutions that failed or would have failed if not for exceptional assistance from the government."News Dissector DANNY SCHECHTER is a journalist, blogger and filmmaker. He has been reporting on economic crises since the 1980's when he was with ABC News. His film In Debt We Trust warned of the economic meltdown in 2006. He has since written three books on the subject including Plunder: Investigating Our Economic Calamity (Cosimo Books, 2008), and The Crime Of Our Time: Why Wall Street Is Not Too Big to Jail (Disinfo Books, 2011), a companion to his latest film Plunder The Crime Of Our Time. He can be reached online at www.newsdissector.com.
| Author | : Ercan Özen |
| Publisher | : Emerald Group Publishing |
| Total Pages | : 377 |
| Release | : 2021-05-21 |
| Genre | : Business & Economics |
| ISBN | : 1800439709 |
New Challenges for Future Sustainability and Wellbeing is a collection of studies about sustainability and related challenges, such as income, wealth, the environment, education and regional equality that influence the pace of economic development and affects the well-being of people and organisations all over the world.
| Author | : Justin Yiqiang Jin |
| Publisher | : |
| Total Pages | : 33 |
| Release | : 2015 |
| Genre | : |
| ISBN | : |
We study whether bank managers' use their discretion in estimating the allowance for loan losses (ALL) for efficiency or for opportunistic reasons. We do so by examining whether the use of this discretion relates to bank stability and bank risk taking, or whether it relates to earnings management to meet or beat earnings benchmarks. We find that banks that had higher abnormal ALL during the period prior to the 2007-2009 financial crisis engaged in less risk taking during the pre-crisis period and had a lower probability of failure during the crisis period. In tests related to earnings management to meet or beat earnings benchmarks, we find that abnormal ALL is unrelated to next period's loss avoidance and just meeting or beating the prior year's earnings. Our results suggest that bank managers use their discretion over ALL for efficiency and not for opportunistic purposes. They inform policy makers and accounting standard setters on banks' use of accounting discretion as a means to build a cushion against future credit losses as they transition from the incurred loss model to the expected loss model for loan loss accounting.
| Author | : Mr.Peter Stella |
| Publisher | : International Monetary Fund |
| Total Pages | : 40 |
| Release | : 1997-07-01 |
| Genre | : Business & Economics |
| ISBN | : 1451850506 |
Central banks may operate perfectly well without capital as conventionally defined. A large negative net worth, however, is likely to compromise central bank independence and interfere with its ability to attain policy objectives. If society values an independent central bank capable of effectively implementing monetary policy, recapitalization may become essential. Proper accounting practice in determining central bank profit or loss and rules governing the transfer of the central bank’s operating result to the treasury are also important. A variety of country-specific central bank practices are reviewed to support the argument.
| Author | : Federal Deposit Insurance Corporation |
| Publisher | : |
| Total Pages | : |
| Release | : 2018-03-06 |
| Genre | : |
| ISBN | : 9780966180817 |
Crisis and Response: An FDIC History, 2008¿2013 reviews the experience of the FDIC during a period in which the agency was confronted with two interconnected and overlapping crises¿first, the financial crisis in 2008 and 2009, and second, a banking crisis that began in 2008 and continued until 2013. The history examines the FDIC¿s response, contributes to an understanding of what occurred, and shares lessons from the agency¿s experience.
| Author | : Jannis Bischof |
| Publisher | : |
| Total Pages | : |
| Release | : 2018 |
| Genre | : |
| ISBN | : |
This paper investigates what we can learn from the financial crisis about the link between accounting and financial stability. The picture that emerges ten years after the crisis is substantially different from the picture that dominated the accounting debate during and shortly after the crisis. Widespread claims about the role of fair-value (or mark-to-market) accounting in the crisis have been debunked. However, we identify several other core issues for the link between accounting and financial stability. Our analysis suggests that, going into the financial crisis, banks' disclosures about relevant risk exposures were relatively sparse. Such disclosures came later after major concerns about banks' exposures had arisen in markets. Similarly, banks delayed the recognition of loan losses. Banks' incentives seem to drive this evidence, suggesting that reporting discretion and enforcement deserve careful consideration. In addition, bank regulation through its interlinkage with financial accounting may have dampened banks' incentives for corrective actions. Our analysis illustrates that a number of serious challenges remain if accounting and financial reporting are to contribute to financial stability.
