Masters of Illusion: Bank and Regulatory Accounting for Losses in Distressed Banks

Edward Kane

No inetwp136, Working Papers Series from Institute for New Economic Thinking

Abstract: This essay is part of a larger work on the history of Federal Reserve policymaking entitled Banking on Bull. The study seeks to explain why the instruments of central banking inevitably break down over time. A big part of the explanation is that policymakers want accounting measures of bank net worth to be flexible enough to allow bankers and regulators to slow the release of adverse information about distressed banks, particularly very large ones. Modern regulatory frameworks focus on maintaining what can be described as the adequacy of accounting capital. But this framework is bull, because in tough times, bank accountants know how to make losses disappear.

Keywords: capital requirements; too big to fail; loss recognition; income-distribution effects (search for similar items in EconPapers)
JEL-codes: E58 G21 G32 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2020-08-27
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:thk:wpaper:inetwp136

DOI: 10.36687/inetwp136

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