Regulatory Accounting When Securities Markets Are Stressed

Mitica Pepi ()
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Mitica Pepi: University of Ovidius, Constanta

Ovidius University Annals, Economic Sciences Series, 2015, vol. XV, issue 2, 529-533

Abstract: While market prices can be useful tools for bank regulation, recent theoretical work argues that reliance on prices can be counterproductive when secondary markets are stressed and illiquid. Evidence from the financial crsis unearthed (in press) provides empirical validation of these arguments. The market analists do not fully acknowledge it, their findings suggest that forcing banks to count liquidity- induced unrealized losses in securities holdings against regulatory capital destroys value and exposes bank creditors, including taxpayers, to more risk. Policy makers contemplating greater regulatory reliance on market prices ignore these findings at their peril.

Keywords: Market; regulatory; accounting; securities; risk (search for similar items in EconPapers)
JEL-codes: G1 G2 M4 (search for similar items in EconPapers)
Date: 2015
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