Discretionary Measurement Of Level 3 Fair Values During The 2008 Financial Crisis
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| Author | : Peter Fiechter |
| Publisher | : |
| Total Pages | : 51 |
| Release | : 2016 |
| Genre | : |
| ISBN | : |
In the absence of quoted prices in active markets, the measurement of fair values is complex and difficult to verify. Prior literature finds that investors discount fair value estimates based on unobservable inputs (i.e., Level 3). However, these value relevance tests cannot discern whether the discount is attributable to managerial opportunism or illiquidity concerns. This paper examines whether banks use Level 3 fair value estimates to manage earnings during the 2008 Financial Crisis. Based on a sample of 329 U.S. banks, we find that banks with earnings management incentives (i.e., low earnings, negative change in earnings, small negative earnings, and low Tier 1 capital) recognize lower-than-necessary losses on Level 3 positions. Our inferences are robust to alternative specifications including the use of bank fixed effects, placebo tests with Level 3 gains or losses recognized in other comprehensive income (OCI), and benchmarking against discretionary loan loss provisions (LLP).
| 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 | : |
| Publisher | : |
| Total Pages | : |
| Release | : 2020 |
| Genre | : |
| ISBN | : 9789289942553 |
As the global financial crisis showed, it is difficult to determine the fair value of some financial instruments, given the lack of liquidity in the relevant markets, the complexity of some of those instruments and the need, in a significant percentage of cases, to use unobservable inputs. Taking the current accounting framework as a given, this report discusses the macroprudential implications of financial instruments that are measured at fair value according to IFRS 9 and IFRS 13 (with a focus on those classified in Levels 2 and 3, since they are typically measured using models and other market-based techniques, as well as affording the greatest degree of discretion). The prudential regulatory framework distinguishes between exposures in the banking book and the trading book on the basis of the intentions underlying the holding of the financial instruments in question, with the former subject to prudential requirements relating to credit risk and the latter to prudential requirements relating to market risk. These instruments are also subject to the requirement to consider prudential valuation adjustments for all financial instruments measured at fair value. Given the limited evidence on the impact that the fair values of financial instruments in Levels 2 and 3 have on financial stability, this report adopts a descriptive approach, relying on supervisory reporting data provided by the European Banking Authority (EBA), a review of academic literature,2 and the financial statements of a small sample of European banks.
| Author | : Anna-Karin Stockenstrand |
| Publisher | : Routledge |
| Total Pages | : 363 |
| Release | : 2017-01-20 |
| Genre | : Business & Economics |
| ISBN | : 131719067X |
Bank Regulation: Effects on Strategy, Financial Accounting and Management Control discusses and problematizes how regulation is affecting bank strategies as well as their financial accounting and management control systems. Following a period of bank de-regulation, the new millennium brought a drastic change, with many new regulations. Some of these are the result of the financial crisis of 2008-2009. Other regulations, such as the introduction in 2005 of International Financial Reporting Standards (IFRS) for quoted companies in the EU, can be related to the introduction of a new global accounting regime. It is evident from annual reports of banks that the number of new regulations in recent years is high and that they cover many different functional areas. The objectives of these regulations are also ambitious; to improve governance and control, contributing to a high level of financial stability for banks. These objectives are obviously of great concern for an industry that directly and indirectly affects the financial situation not only of individuals and organizations but also nation states. Considering the importance of banks in society, it is of little surprise that the attention of both scholars and practitioners has been directed towards how banks comply with new regulations and if the intended objectives of the regulations are met. This book will be of great value to all those interested in financial stability matters (practitioners, policy-makers, students, academics), as well as to accounting and finance scholars.
| Author | : Ruth Picker |
| Publisher | : John Wiley & Sons |
| Total Pages | : 754 |
| Release | : 2019-06-24 |
| Genre | : Business & Economics |
| ISBN | : 1119159229 |
Understanding the main concepts of IFRS Standards The fourth edition of Applying IFRS Standards explains the core principles of International Financial Reporting (IFRS) Standards. It also addresses the skills needed to apply the standards in business environments. The book begins with an overview of the International Accounting Standards Board (IASB) and how it establishes accounting standards. The general book topics are then covered in detail and include: income taxes, financial instruments, fair value measurement, property, inventories, employee benefits and more. Discussion questions, exercises and references are provided throughout the book.
| Author | : Mr.Luc Laeven |
| Publisher | : International Monetary Fund |
| Total Pages | : 42 |
| Release | : 2010-02-01 |
| Genre | : Business & Economics |
| ISBN | : 1451963025 |
The ongoing global financial crisis is rooted in a combination of factors common to previous financial crises and some new factors. The crisis has brought to light a number of deficiencies in financial regulation and architecture, particularly in the treatment of systemically important financial institutions, the assessments of systemic risks and vulnerabilities, and the resolution of financial institutions. The global nature of the financial crisis has made clear that financially integrated markets, while offering many benefits, can also pose significant risks, with large real economic consequences. Deep reforms are therefore needed to the international financial architecture to safeguard the stability of an increasingly financially integrated world.
| Author | : |
| Publisher | : Othmar M. Lehner |
| Total Pages | : 655 |
| Release | : |
| Genre | : |
| ISBN | : 3950351809 |
| Author | : Ulf Mohrmann |
| Publisher | : Logos Verlag Berlin GmbH |
| Total Pages | : 300 |
| Release | : 2016-02-15 |
| Genre | : Business & Economics |
| ISBN | : 3832541853 |
The dissertation consists of four essays on the quality of audited financial statements. The first analysis investigates the association between several regulations of the audit market and earnings characteristics. The second essay differentiates between different drivers of audit quality after an auditor change by comparing the effects of voluntary and mandatory auditor changes. The third study analyses the different strategies of Big4 and non-Big4 auditors in dealing with Level 3 fair values. The fourth part examines banks' valuation behavior concerning Level 3 fair values.
| Author | : International Accounting Standards Board |
| Publisher | : |
| Total Pages | : 104 |
| Release | : 2006 |
| Genre | : Business & Economics |
| ISBN | : |
| Author | : United States. Congress. House. Committee on Oversight and Government Reform |
| Publisher | : |
| Total Pages | : 256 |
| Release | : 2010 |
| Genre | : Business & Economics |
| ISBN | : |
