Accounting Quality in Banking: The Role of Regulatory Interventions
Journal of Banking & Finance,
Using the full sample of U.S. banks and hand-collected data on enforcement actions over 2000–2014, we analyze the role of these interventions in promoting several aspects of accounting quality. We find that enforcement actions issued for both risk-related and accounting-related reasons lead to significant improvements in accounting quality. This improvement is consistently found for earnings smoothing, big-bath accounting, timely recognition of future loan losses, the association of loan loss provisions with future loan charge offs, loss avoidance, and cash flow predictability and earnings persistence. Most of the effects are somewhat more potent in the crisis period and survive in several sensitivity tests. Our findings highlight the imperative role of regulatory interventions in promoting bank accounting quality.
26.11.2015 • 43/2015
Political lendings of German Savings Banks
A recent paper of the Halle Institute for Economic Research (IWH) suggests that German local politicians take advantage of their influence on the credit decisions of German savings banks. “German savings banks on average increase the supply of commercial loans by €7.6 million in the year of a local election”, says IWH president Reint E. Gropp. Loans that the savings banks generate during election years also perform worse and lead to lower interest income. The results suggest that local politicians take advantage of savings banks to further their chances of re-election.
Read press release