Accounting discretion of banks during a financial crisis
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 mo...
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| Format: | eBook |
| Language: | English |
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Washington, D.C.
International Monetary Fund
2009
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| Series: | IMF Working Papers
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| Collection: | International Monetary Fund - Collection details see MPG.ReNa |
| Summary: | 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 |
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| Physical Description: | 41 pages |
| ISBN: | 9781451873542 |