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A Convenient Scapegoat: Fair Value Accounting by Commercial Banks during the Financial Crisis

The Accounting review, 2012-01, Vol.87 (1), p.59-90 [Peer Reviewed Journal]

2012 American Accounting Association ;Copyright American Accounting Association Jan 2012 ;ISSN: 0001-4826 ;EISSN: 1558-7967 ;DOI: 10.2308/accr-10166 ;CODEN: ACRVAS

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Title:
A Convenient Scapegoat: Fair Value Accounting by Commercial Banks during the Financial Crisis
Author: Badertscher, Brad A. ; Burks, Jeffrey J. ; Easton, Peter D.
Subjects: Accounting ; Accounting interpretations ; Bank assets ; Bank capital ; Banking crises ; Banking industry ; Banking regulation ; Causality ; Commercial banks ; Economic analysis ; Economic crisis ; Fair market value ; Fair value ; Financial accounting ; Financial crisis ; Financial institutions ; Financial securities ; Investment analysis ; Regulatory policy ; Securities sales ; Studies ; U.S.A
Is Part Of: The Accounting review, 2012-01, Vol.87 (1), p.59-90
Description: Critics argue that fair value provisions in U. S. accounting rules exacerbated the recent financial crisis by depleting banks' regulatory capital, which curtailed lending and triggered asset sales, leading to further economic turmoil. Defenders counter-argue that the fair value provisions were insufficient to lead to the pro-cyclical effects alleged by the critics. Our evidence indicates that these provisions did not affect the commercial banking industry in the ways commonly alleged by critics.First, we show that fair value accounting losses had minimal effect on regulatory capital.Then, we examine sales of securities during the crisis, finding mixed evidence that banks sold securities in response to capital-depleting charges. However, the sales that potentially resulted from the charges appear to be economically insignificant, as there was no industry-or firm-level increase in sales of securities during the crisis.
Publisher: Sarasota: American Accounting Association
Language: English
Identifier: ISSN: 0001-4826
EISSN: 1558-7967
DOI: 10.2308/accr-10166
CODEN: ACRVAS
Source: AUTh Library subscriptions: ProQuest Central

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A Convenient Scapegoat: Fair Value Accounting by Commercial Banks during the Financial Crisis

2012 American Accounting Association ;Copyright American Accounting Association Jan 2012 ;ISSN: 0001-4826 ;EISSN: 1558-7967 ;DOI: 10.2308/accr-10166 ;CODEN: ACRVAS

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