Fair Value Accounting, Transparency and Financial Stability

Mahieux, Lucas

doi:10.2139/ssrn.2900454

Cited by 4 publications

(1 citation statement)

References 80 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Our paper is related to the theoretical literature that examines the role of accounting measurements and disclosure in affecting financial stability and prudential regulation (see Goldstein and Sapra [2014] for a survey). For example, Allen and Carletti [2008], Plantin, Sapra, and Shin [2008], Burkhardt and strausz [2009], and Mahieux [2021] examine the impact of mark‐to‐market accounting on bank risk and financial stability. Corona, Nan, and Zhang [2019] examine the coordination role of stress‐test disclosure in affecting bank risk‐taking.…”

Section: Introductionmentioning

confidence: 99%

CECL: Timely Loan Loss Provisioning and Bank Regulation

Mahieux

Sapra

Zhang

2022

J of Accounting Research

View full text Add to dashboard Cite

We investigate how provisioning models a¤ect bank regulation. We study an accuracy vs. timeliness trade-o¤ between an incurred loss model (IL) and a current expected credit loss model (CECL). Relative to IL, CECL improves e¢ ciency by enabling timely intervention to curb ine¢ cient ex post asset-substitution even though the imprecise information of CECL entails false alarms. However, from a real e¤ects perspective, our analysis uncovers a potential cost of CECL: banks respond to timely intervention by originating riskier loans so that timely intervention induces timelier risk-taking. By appropriately tailoring regulatory capital to information about credit losses, the regulator can improve the e¢ ciency of CECL. In particular, we show that regulatory capital under CECL would be looser when early estimates of credit losses are su¢ ciently precise and/or risk-shifting incentives are not too severe. From a policy perspective, our analysis suggests that better coordination between standard setters and bank regulators could enable the latter to relax capital requirements in order to spur lending.

show abstract