Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/222280
Authors: 
Bischof, Jannis
Laux, Christian
Leuz, Christian
Year of Publication: 
2020
Series/Report no.: 
SAFE Working Paper No. 283
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.
Subjects: 
Banks
Financial crisis
Financial stability
Disclosure
Loan loss accounting
Expected credit losses
Incurred loss model
Prudential filter
Fair valueaccounting
JEL: 
G21
G22
G28
G32
G38
K22
M41
M42
M48
Document Type: 
Working Paper

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