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Can accounting rules be made neutral for bank capital regulation?

Can accounting rules be made neutral for bank capital regulation?

Song, Guoxiang (2012) Can accounting rules be made neutral for bank capital regulation? Journal of Governance and Regulation, 1 (3). pp. 27-35. ISSN 2220-9352 (Print), 2306-6784 (Online)

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Abstract

This paper evaluates several methods which can possibly be used to minimize the pro-cyclical impact of accounting rules on bank capital regulation. Improving accounting rules cannot eliminate the pro-cyclicality problem as the recently proposed expected credit loss impairment model for historical cost accounting may be moving towards using information inputs for fair values. Limiting the trading activities accounted for by fair values may reduce the pro-cyclicality. However, it cannot eliminate the impact of fair values in a liquidity crisis. The most effective method is to exclude the unrealized accounting gains or losses from regulatory capital. But it needs a report of capital ratios based on accounting measures to help regulators read the early warning signals emitted by the accounting information.

Item Type: Article
Additional Information: [1] First published: 2012.
Uncontrolled Keywords: bank capital regulation, leverage ratio, tier 1 capital ratio, fair value accounting, historical cost accounting, financial crisis, pro-cyclicality, expected credit losses
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
Faculty / Department / Research Group: Faculty of Business > Department of Accounting & Finance
Related URLs:
Last Modified: 14 Oct 2016 09:22
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
Selected for GREAT 2019: None
URI: http://gala.gre.ac.uk/id/eprint/8887

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