Bank loan loss accounting treatments, credit cycles and crash risk

Andreou, P C, Cooper, I, Louca, A and Philip, D (2017) Bank loan loss accounting treatments, credit cycles and crash risk. The British Accounting Review, 49 (5). pp. 474-492. ISSN 0890-8389

Abstract

Banks that follow conditional conservatism in their loan loss accounting treatments benefit from a reduction in crash risk. The key discretionary loan loss accounting channels are provisions and allowances. We show that conditional conservatism reduces crash risk of small banks during periods of credit contraction and boom. Interestingly, for large banks, crash risk is not reduced by more conservative accounting even for those with higher levels of opacity. Hence regulation prompting for more conservative bank loan loss accounting does not present a significant opportunity to limit systemic effects arising from abrupt price declines in the stocks of large banks.

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Item Type: Article
Subject Areas: Finance
Additional Information: © 2017 Elsevier. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0
Subjects: A > Accounting
R > Risk
Date Deposited: 23 Feb 2017 14:17
Last Modified: 21 Jan 2019 08:02
URI: http://lbsresearch.london.edu/id/eprint/797
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