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

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The economic consequences of extending the use of fair value accounting in regulatory capital calculations. / Chircop, Justin; Novotny-Farkas, Zoltan.
In: Journal of Accounting and Economics, Vol. 62, No. 2-3, 11.2016, p. 183-203.

Research output: Contribution to Journal/MagazineJournal articlepeer-review

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Chircop J, Novotny-Farkas Z. The economic consequences of extending the use of fair value accounting in regulatory capital calculations. Journal of Accounting and Economics. 2016 Nov;62(2-3):183-203. Epub 2016 Nov 1. doi: 10.1016/j.jacceco.2016.10.004

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Bibtex

@article{762591e37f9b40529f920e3169f64b2e,
title = "The economic consequences of extending the use of fair value accounting in regulatory capital calculations",
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.",
keywords = "Banks, Fair value accounting, Prudential regulation, Regulatory capital",
author = "Justin Chircop and Zoltan Novotny-Farkas",
note = "This is the author{\textquoteright}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",
year = "2016",
month = nov,
doi = "10.1016/j.jacceco.2016.10.004",
language = "English",
volume = "62",
pages = "183--203",
journal = "Journal of Accounting and Economics",
issn = "0165-4101",
publisher = "Elsevier",
number = "2-3",

}

RIS

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 -