Relationship loans and regulatory capital: why fair-value accounting is inappropriate for bank loans

William Emmons and Gregory E. Sierra

No 2006-02, Supervisory Policy Analysis Working Papers from Federal Reserve Bank of St. Louis

Abstract: Banks have been required to report many securities and all derivatives at fair values under U.S. GAAP rules for many years. Soon, International Accounting Standards will provide some banks with a ?fair-value option? for loans, also. A similar movement toward applying fair values to loans may occur in the U.S. in the near future, too. ; This paper argues that fair-value accounting is inappropriate for banks? relationship loans from the standpoint of safety-and-soundness supervision?that is, for the purposes of calculating a bank?s regulatory capital. The argument is straightforward, although perhaps not obvious.

Keywords: Bank loans; Bank capital; Bank supervision (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-acc, nep-ban and nep-reg
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