1932
0
  1. Home
  2. A-Z Publications
  3. Annual Review of Financial Economics
  4. Volume 10, 2018
  5. Article

Annual Review of Financial Economics

Volume 10, 2018

Recent Research on Banks’ Financial Reporting and Financial Stability

Abstract

Banks’ financial reporting requirements and discretionary choices may affect financial stability by altering one or more of the likelihood that banks violate regulatory capital requirements, banks’ internal discipline over risk management and financial reporting, and external market and regulatory discipline over banks. In this article, I discuss five recent empirical papers that examine these channels linking banks’ financial reporting to financial stability. I explain how these papers identify economic contexts and associated financial reporting constructs that enable powerful examinations of these channels, and how they employ research designs that meaningfully address the issues regarding valid causal inference raised by Acharya & Ryan (2016). I conclude that, while each study examines a specific channel or two in a specific setting, collectively the literature is making steady progress in enhancing our understanding of the causal forces at play in the channels linking banks’ financial reporting and financial stability, the goal set forth by Acharya & Ryan (2016). I also identify open questions that these papers suggest for future research on the effects of banks’ financial reporting on financial stability.

Keyword(s): banks, external discipline, financial reporting, financial stability, internal discipline, JEL G01, JEL G21, JEL G28, JEL M41, JEL M48, regulatory capital
Loading

Article metrics loading...

/content/journals/10.1146/annurev-financial-110217-022700
2018-11-01
2025-04-23
Loading full text...

Full text loading...

/deliver/fulltext/financial/10/1/annurev-financial-110217-022700.html?itemId=/content/journals/10.1146/annurev-financial-110217-022700&mimeType=html&fmt=ahah

Literature Cited

  1. Acharya V, Ryan S 2016. Banks’ financial reporting and financial system stability. J. Account. Res. 54:277–340
     [Google Scholar]
  2. Argimón I, Dietsch M, Estrada Á 2017. Prudential filters, portfolio composition at fair value and capital ratios in European banks. J. Financ. Stab In press
     [Google Scholar]
  3. Balakrishnan K, Ertan A 2017.a Credit information sharing and loan loss recognition Work. Pap., Lond. Bus. Sch London:
     [Google Scholar]
  4. Balakrishnan K, Ertan A 2017.b Mandatory bank disclosures and credit supply Work. Pap., Lond. Bus. Sch London:
     [Google Scholar]
  5. Barth M, Landsman W, Wahlen J 1995. Fair value accounting: effects on banks’ earnings volatility, regulatory capital, and value of contractual cash flows. J. Bank. Finance 19:3–4577–605
     [Google Scholar]
  6. Basel Comm. Bank. Superv. 2011. Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems Basel: Bank Int. Settl
     [Google Scholar]
  7. Beatty A 1995. The effects of fair value accounting on investment portfolio management: How fair is it. Fed. Reserve Bank St. Louis Rev. 77:25–39
     [Google Scholar]
  8. Berry-Stölzle T, Nini G, Wende S 2014. External financing in the life insurance industry: evidence from the financial crisis. J. Risk Insur. 81:529–62
     [Google Scholar]
  9. Bhat G, Ryan S 2015. The impact of risk modeling on the market perception of banks’ estimated fair value gains and losses for financial instruments. Account. Organ. Soc. 46:81–95
     [Google Scholar]
  10. Bhat G, Ryan S, Vyas D 2018. The implications of credit risk modeling for banks’ loan loss provisions and loan-origination procyclicality. Manag. Sci. In press
     [Google Scholar]
  11. Bushman R, Williams C 2012. Accounting discretion, loan loss provisioning, and discipline of banks’ risk taking. J. Account. Econ. 54:11–18
     [Google Scholar]
  12. Bushman R, Williams C 2015. Delayed expected loss recognition and the risk profile of banks. J. Account. Res. 53:511–53
     [Google Scholar]
  13. Chircop J, Novotny-Farkas Z 2016. The economic consequences of extending the use of fair value accounting in regulatory capital calculations. J. Account. Econ. 62:2183–203
     [Google Scholar]
  14. Cornett M, McNutt J, Strahan P, Tehranian H 2011. Liquidity risk management and credit supply in the financial crisis. J. Financ. Econ. 101:2297–312
     [Google Scholar]
  15. Dang T, Gorton G, Holmström B, Ordoñez G 2017. Banks as secret keepers. Am. Econ. Rev. 107:41005–29
     [Google Scholar]
  16. Dep. Treas., Fed. Reserve Syst. 2013. Regulatory capital rules: regulatory capital, implementation of Basel III, capital adequacy, transition provisions, prompt corrective action, standardized approach for risk-weighted assets, market discipline and disclosure requirements, advanced approaches risk-based capital rule, and market risk capital rule. Fed. Regist 78:62018–291
     [Google Scholar]
  17. Dep. Treas., Fed. Reserve Syst., Fed. Depos. Insur. Corp. 2012. Regulatory capital rules: regulatory capital, implementation of Basel III, minimum regulatory capital ratios, capital adequacy, transition provisions, and prompt corrective action; proposed rule. Fed. Regist 77:52791–886
     [Google Scholar]
  18. Dou Y 2017. The spillover effects of consolidating securitization entities on small business lending Work. Pap., Dep. Account., N.Y. Univ New York:
     [Google Scholar]
  19. Dou Y, Ryan S, Xie B 2018. The real effects of FAS 166/167 on banks’ mortgage approval and sale decisions. J. Account. Res. 56:3843–82
     [Google Scholar]
  20. Ellul A, Jotikasthira C, Lundblad C, Wang Y 2014. Mark-to-market accounting and systemic risk: evidence from the insurance industry. Econ. Policy 29:1297–341
     [Google Scholar]
  21. Ellul A, Jotikasthira C, Lundblad C, Wang Y 2015. Is historical cost accounting a panacea? Market stress, incentive distortions, and gains trading. J. Finance 70:12489–538
     [Google Scholar]
  22. Ertan A, Loumioti M, Wittenberg-Moerman R 2017. Enhancing loan quality through transparency: evidence from the European Central Bank Loan Level Reporting Initiative. J. Account. Res. 55:4877–918
     [Google Scholar]
  23. FASB (Financ. Account. Stand. Board). 1993. Accounting for certain investments in debt and equity securities Statement Financ. Account. Stand. 115 FASB Norwalk, CT:
     [Google Scholar]
  24. FASB (Financ. Account. Stand. Board). 1998. Accounting for derivative instruments and hedging activities Statement Financ. Account. Stand. 133 FASB Norwalk, CT:
     [Google Scholar]
  25. FASB (Financ. Account. Stand. Board). 2006. Fair value measurements Statement Financ. Account. Stand. 157 FASB Norwalk, CT:
     [Google Scholar]
  26. FASB (Financ. Account. Stand. Board). 2009.a Accounting for transfers of financial assets—an amendment of FASB Statement No. 140 Statement Financ. Account. Stand. 166 FASB Norwalk, CT:
     [Google Scholar]
  27. FASB (Financ. Account. Stand. Board). 2009.b Amendments to FASB Interpretation No. 46(R) Statement Financ. Account. Stand. 167 FASB Norwalk, CT:
     [Google Scholar]
  28. FASB (Financ. Account. Stand. Board). 2009.c Recognition and presentation of other-than-temporary impairments Staff Position FAS 115-2 and FAS 124-2 FASB Norwalk, CT:
     [Google Scholar]
  29. FASB (Financ. Account. Stand. Board). 2010. Receivables (Topic 310): disclosures about the credit quality of financing receivables and the allowance for credit losses Account. Stand. Update 2010-20 FASB Norwalk, CT:
     [Google Scholar]
  30. FASB (Financ. Account. Stand. Board). 2014. Transfers and servicing (Topic 860): repurchase-to-maturity transactions, repurchase financings, and disclosures Account. Stand. Update 2014-11 FASB Norwalk, CT:
     [Google Scholar]
  31. FASB (Financ. Account. Stand. Board). 2016. Financial instruments—overall (Subtopic 825-10): recognition and measurement of financial assets and financial liabilities Account. Stand. Update 2016-01 FASB Norwalk, CT:
     [Google Scholar]
  32. FASB (Financ. Account. Stand. Board). 2017. Derivatives and hedging (Topic 815): Targeted improvements to accounting for hedging activities Account. Stand. Update 2017-12 FASB Norwalk, CT:
     [Google Scholar]
  33. Hamilton D 2018. Fear of (capital) commitment: strategic accounting classifications and the consequences for fixed income dealer inventories Work. Pap., Dep. Finance, Univ Iowa, Iowa City:
     [Google Scholar]
  34. Hodder L, Kohlbeck M, McAnally M 2002. Accounting choices and risk management: SFAS no. 115 and US bank holding companies. Contemp. Account. Res. 19:2225–70
     [Google Scholar]
  35. Kim S, Kim S, Ryan S 2018. Economic consequences of the AOCI filter removal for advanced approaches banks Work. Pap., Stern Sch. Bus., N.Y. Univ New York:
     [Google Scholar]
  36. Khan U, Ryan S, Varma A 2018. Fair value versus amortized cost measurement and the timeliness of other-than-temporary impairments: evidence from the insurance industry Work Pap., Stern Sch. Bus., N.Y. Univ New York:
     [Google Scholar]
  37. Laux C 2016. The economic consequences of extending the use of fair value accounting in regulatory capital calculations: a discussion. J. Account. Econ. 62:2204–8
     [Google Scholar]
  38. Meder A 2015. Interaction between accounting standards and monetary policy: the effect of SFAS 115. Account. Rev. 90:52031–56
     [Google Scholar]
  39. Morgan D 2002. Rating banks: risk and uncertainty in an opaque industry. Am. Econ. Rev. 92:874–88
     [Google Scholar]
  40. NAIC (Natl. Assoc. Insur. Comm.). 2009. Loan backed and structured securities Statement Statut. Account. Princ. 43R NAIC Washington, DC:
     [Google Scholar]
  41. Neilson J, Ryan S, Wang K, Xie B 2018. Asset-level transparency and the (e)valuation of asset-backed securities Work Pap., Penn. State Univ., State College
    [Google Scholar]
  42. Nier E, Baumann U 2006. Market discipline, disclosure and moral hazard in banking. J. Financ. Intermed. 15:332–61
     [Google Scholar]
  43. Ryan S 2011. Financial reporting for financial instruments. Found. Trends Account. 6:187–354
     [Google Scholar]
  44. Ryan S 2017. Do the effects of accounting requirements on banks’ regulatory capital adequacy undermine financial stability?. Annu. Rev. Financ. Econ. 9:1–20
     [Google Scholar]
  45. Sangiuolo R, Seidman LF 2008. Financial Instruments: A Comprehensive Guide to Accounting and Reporting: 2009 Edition Chicago: CCH
     [Google Scholar]
  46. Seidman LF, Wilkins RC 1995. A guide to implementation of Statement 115 on accounting for certain investments in debt and equity securities: questions and answers Spec. Rep, Financ. Account. Stand. Board Norwalk, CT:
     [Google Scholar]
  47. SEC (Secur. Exch. Comm.). 2014. 17 CFR Parts 229, 230, 232 Asset-backed securities disclosure and registration; final rule. Fed. Regist. 7918521375 Sept. 24. https://www.gpo.gov/fdsys/pkg/FR-2014-09-24/pdf/2014-21375.pdf
    [Google Scholar]
  48. Tian X, Zhang H 2017. Impact of FAS 166/167 on credit card securitization Work. Pap., Ohio State Univ Columbus:
     [Google Scholar]
  49. Wagner D, Carney HC 2012. Treatment of unrealized gains and losses under the Basel III capital framework Letter, Am. Bank. Assoc Washington, DC.: https://www.aba.com/archive/Comment_Letter_Archive/Comment%20Letter%20Archive/clBaselGainsLosses2012March.pdf
    [Google Scholar]
/content/journals/10.1146/annurev-financial-110217-022700
Loading
  • Article Type: Review Article

Most Cited Most Cited RSS feed

This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error