The economic consequences of extending the use of fair value accounting in regulatory capital calculations

Chircop, Justin and Novotny-Farkas, Zoltan (2016) The economic consequences of extending the use of fair value accounting in regulatory capital calculations. Journal of Accounting and Economics, 62 (2-3). pp. 183-203. ISSN 0165-4101

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Official URL: https://doi.org/10.1016/j.jacceco.2016.10.004

Abstract

We investigate the economic consequences of the Basel III requirement to include unrealized fair value gains and losses on available-for-sale (AFS) securities in regulatory capital. Using data for U.S. banks we find negative market reactions around news indicating an increased likelihood of this regulatory change being implemented, consistent with increased regulatory costs. We also find that banks affected by this regulation reduce their investment in risky AFS securities relative to unaffected banks. This result suggests that extending the use of fair values for regulatory purposes reduces ex ante risk taking.

Item Type:

Journal Article

Journal or Publication Title:

Journal of Accounting and Economics

Additional Information:

This is the author’s version of a work that was accepted for publication in Journal of Accounting and Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Accounting and Economics, 62, 2-3, 2016 DOI: 10.1016/j.jacceco.2016.10.004

Uncontrolled Keywords:

/dk/atira/pure/subjectarea/asjc/1400/1402

Subjects:

Departments:

Lancaster University Management School > Accounting & Finance

ID Code:

82238

Deposited By:

ep_importer_pure

Deposited On:

17 Oct 2016 12:10

Refereed?: