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The contribution of bank regulation and fair value accounting to procyclical leverage

Amir Amel-Zadeh (), Mary E. Barth () and Wayne R. Landsman ()
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Amir Amel-Zadeh: University of Oxford
Mary E. Barth: Stanford University
Wayne R. Landsman: University of North Carolina

Review of Accounting Studies, 2017, vol. 22, issue 3, No 12, 1423-1454

Abstract: Abstract Our analysis of how banks’ responses to asset price changes can result in procyclical leverage reveals that, for banks with a binding regulatory leverage constraint, absent differences in regulatory risk weights across assets, procyclical leverage does not occur. For banks without a binding constraint, fair value and bank regulation both can contribute to procyclical leverage. Empirical findings based on a large sample of U.S. commercial banks reveal that bank regulation explains procyclical leverage for banks relatively close to the regulatory leverage constraint and contributes to procyclical leverage for those that are not. We also show that fair value accounting does not contribute to procyclical leverage.

Keywords: Fair value accounting; Procyclicality; Leverage; Bank regulation; Commercial banks (search for similar items in EconPapers)
JEL-codes: E32 G20 G21 G28 G32 M41 (search for similar items in EconPapers)
Date: 2017
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