The Contribution of Bank Regulation and Fair Value Accounting to Procyclical Leverage

Amel-Zadeh, Amir, Barth, Mary and Landsman, Wayne (2016) The Contribution of Bank Regulation and Fair Value Accounting to Procyclical Leverage. Rock Center for Corporate Governance at Stanford University Working Paper No. 147.

Abstract

Our analytical description of how banks’ responses to asset price changes can result in procyclical leverage reveals that for banks with a binding regulatory leverage constraint, absent differences in regulatory risk weights across assets, leverage is not procyclical. For banks without a binding constraint, fair value and bank regulation both can contribute to procyclical leverage. Empirical findings based on a large sample of US commercial banks reveal that bank regulation explains procyclical leverage for banks relatively close to the regulatory leverage constraint and contributes to procyclical leverage for those that are not. Fair value accounting does not contribute to procyclical leverage.

Item Type: Other Working Paper
Keywords: Fair value accounting, procyclicality, leverage, risk-based capital regulation, financial institutions, commercial banks, accounting, finance
Subject(s): Accounting
Finance
Date Deposited: 17 Aug 2016 09:02
Last Modified: 22 Feb 2017 15:17
Funders: not applicable
URI: http://eureka.sbs.ox.ac.uk/id/eprint/6208

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