Accounting for financial stability : lessons from the financial crisis and future challenges

  • This paper investigates what we can learn from the financial crisis about the link between accounting and financial stability. The picture that emerges ten years after the crisis is substantially different from the picture that dominated the accounting debate during and shortly after the crisis. Widespread claims about the role of fair-value (or mark-to-market) accounting in the crisis have been debunked. However, we identify several other core issues for the link between accounting and financial stability. Our analysis suggests that, going into the financial crisis, banks’ disclosures about relevant risk exposures were relatively sparse. Such disclosures came later after major concerns about banks’ exposures had arisen in markets. Similarly, banks delayed the recognition of loan losses. Banks’ incentives seem to drive this evidence, suggesting that reporting discretion and enforcement deserve careful consideration. In addition, bank regulation through its interlinkage with financial accounting may have dampened banks’ incentives for corrective actions. Our analysis illustrates that a number of serious challenges remain if accounting and financial reporting are to contribute to financial stability.

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Metadaten
Author:Jannis BischofORCiDGND, Christian LauxORCiDGND, Christian LeuzORCiDGND
URN:urn:nbn:de:hebis:30:3-438703
DOI:https://doi.org/10.2139/ssrn.3393148
Parent Title (English):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 622
Series (Serial Number):CFS working paper series (622)
Publisher:Center for Financial Studies
Place of publication:Frankfurt, M.
Document Type:Working Paper
Language:English
Year of Completion:2019
Year of first Publication:2019
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2019/06/24
Tag:Banks; Disclosure; Fair value accounting; Financial crisis; Financial stability; Loan loss accounting; Mark-to-market
Issue:December 2018
Page Number:76
HeBIS-PPN:450504824
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht