The Information Content of Commercial Banks’ Fair Value Disclosures of Loans Under SFAS No. 107

Chee, Seungmin

doi:10.2139/ssrn.2158499

Cited by 8 publications

(2 citation statements)

References 16 publications

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“…However, consistent with the conjecture that reported loan fair values, on average, reflect attributes other than fair value, Chee [2013] finds that reported loan fair values lag proxies for the market value of loans, and loan fair values do not subsume nonperforming loans in explaining future realized loan losses. Chee concludes that reported loan fair values do not reflect market values, or readily available credit risk information, and interprets results as evidence that fair values for loans are not sufficiently relevant and reliable to be recognized in the financial statements; the paper does not discuss the possibility that what appear to be disclosed loan fair values may in fact reflect measurements other than fair value (e.g., entry prices).…”

Section: Operationalizing Fair Value Amounts In Research Assessing Thsupporting

confidence: 66%

Fair Value Measurement in Financial Reporting

Hodder

2014

FNT in Accounting

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Section: Operationalizing Fair Value Amounts In Research Assessing Thsupporting

confidence: 66%

Fair Value Measurement in Financial Reporting

Hodder

2014

FNT in Accounting

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“…Similarly, there is mixed evidence on the predictive value of the fair value of loans. Chee (2011) and Cantrell et al (2014) find that the fair value of loans is only marginally better in predicting loan defaults over traditional cost-based measures. However, Blankespoor et al (2013) find that the fair values of loans and deposits are incrementally significant in predicting bank failure when used in a measure of bank leverage.…”

Section: Prior Researchmentioning

confidence: 98%

Loan fair values and the financial crisis

Chipalkatti

Dipierro

Luft

et al. 2020

JRF

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Purpose In 2009, effective the second-quarter, the financial accounting standards board mandated that all banks need to disclose the fair value of loans in their 10-Q filings in addition to their 10-K filings. This paper aims to investigate whether these disclosures reduced the level of information asymmetry about the riskiness of bank loan portfolios during the financial crisis. Design/methodology/approach The paper examines the impact of these disclosures on the bid-ask spread of a panel of 246 publicly traded bank holding companies. The spread serves as a proxy for information asymmetry and the ratio of the fair value of a bank’s loan portfolio to its book value is a proxy for the credit and liquidity risk associated with the same. The reaction to the first-quarter filing serves as a control to assess the reaction at the time of the second-quarter filing. Findings There is a significant negative association between bid-ask spread and the ratio indicating that the fair value information was useful in reducing information asymmetry during the financial crisis. A pattern was observed in the information dissemination related to the fair value of loans that is consistent with the literature that documents a delayed investor reaction to complex financial information. Originality/value Investors may use the fair value information to better assess the risk profile of a BHC’s loan portfolio. Also, loan fair values provide managers with data to better implement stress test models and determine optimal capital buffers.

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References

2015

Value and Capital Management: A Handbook for the Finance and Risk Functions of Financial Institutions

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The Information Content of Commercial Banks’ Fair Value Disclosures of Loans Under SFAS No. 107

Cited by 8 publications

References 16 publications

Fair Value Measurement in Financial Reporting

Fair Value Measurement in Financial Reporting

Loan fair values and the financial crisis

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