Starjournal Quotation Bischof, Jannis, Laux, Christian, Leuz, Christian. 2021. Accounting for Financial Stability: Bank Disclosure and Loss Recognition in the Financial Crisis. Journal of Financial Economics.


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Abstract

This paper examines banks’ disclosures and loss recognition in the financial crisis and identifies several 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, the recognition of loan losses was relatively slow and delayed relative to prevailing market expectations. Among the possible explanations for this evidence, our analysis suggests that banks’ reporting incentives played a key role, which has important implications for bank supervision and the new expected loss model for loan accounting. We also provide evidence that shielding regulatory capital from accounting losses through prudential filters can dampen banks’ incentives for corrective actions. Overall, our analysis reveals several important challenges if accounting and financial reporting are to contribute to financial stability. Keywords: Banks, Financial crisis, Financial stability, Disclosure, Loan loss accounting, Expected credit losses, Incurred loss model, Prudential filter, Fair value accounting

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Journal of Financial Economics
Citation Index SSCI
WU Journalrating 2009 A+
Starjournal Y
Language English
Title Accounting for Financial Stability: Bank Disclosure and Loss Recognition in the Financial Crisis
Year 2021
DOI https://doi.org/10.1016/j.jfineco.2021.05.016
Open Access N
JEL G21, G22, G28, G32, G38, K22, M41, M42, M48

Associations

People
Laux, Christian (Details)
External
Bischof, Jannis (Universität Mannheim, Germany)
Leuz, Christian (University of Chicago Booth School of Business, United States/USA)
Organization
Institute for Finance, Banking and Insurance IN (Details)
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