Rights statement: 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
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Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
}
TY - JOUR
T1 - The economic consequences of extending the use of fair value accounting in regulatory capital calculations
AU - Chircop, Justin
AU - Novotny-Farkas, Zoltan
N1 - 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
PY - 2016/11
Y1 - 2016/11
N2 - 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.
AB - 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.
KW - Banks
KW - Fair value accounting
KW - Prudential regulation
KW - Regulatory capital
U2 - 10.1016/j.jacceco.2016.10.004
DO - 10.1016/j.jacceco.2016.10.004
M3 - Journal article
VL - 62
SP - 183
EP - 203
JO - Journal of Accounting and Economics
JF - Journal of Accounting and Economics
SN - 0165-4101
IS - 2-3
ER -