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Financial statements and reality: do troubled banks tell all?

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  • Jeffery W. Gunther
  • Robert R. Moore
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    Abstract

    Each quarter, banks file a call report, or Report of Condition and Income, containing hundreds of accounting items pertaining to their financial condition. This article analyzes call report revisions to assess the extent to which regulatory exams promote accurate data. The findings indicate banks with new or emerging difficulties often significantly underreport these problems, intentionally or not. In addition, the findings point to a significant role for exams in uncovering financial problems and ensuring bank accounting statements reflect them. To the extent the loan-loss accounting in call reports is widely used to assess loan quality, these results support the view that exams are important in the public dissemination of accurate information on banks' financial condition.

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    File URL: http://www.dallasfed.org/assets/documents/research/efr/2000/efr0003c.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of Dallas in its journal Economic and Financial Policy Review.

    Volume (Year): (2000)
    Issue (Month): Q3 ()
    Pages: 30-35

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    Handle: RePEc:fip:fedder:y:2000:i:q3:p:30-35

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    References

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    1. Larry D. Wall & Timothy W. Koch, 2000. "Bank loan-loss accounting: a review of theoretical and empirical evidence," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 1-20.
    2. Berger, Allen N. & King, Kathleen Kuester & O'Brien, James M., 1991. "The limitations of market value accounting and a more realistic alternative," Journal of Banking & Finance, Elsevier, vol. 15(4-5), pages 753-783, September.
    3. John R. Walter, 1991. "Loan loss reserves," Economic Review, Federal Reserve Bank of Richmond, issue Jul, pages 20-30.
    4. Rebel Cole & Jeffery Gunther, 1998. "Predicting Bank Failures: A Comparison of On- and Off-Site Monitoring Systems," Journal of Financial Services Research, Springer, vol. 13(2), pages 103-117, April.
    5. Simon Kwan & Randy O'Toole, 1997. "Recent developments in loan loss provisioning at U.S. commercial banks," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jul25.
    6. Flannery, Mark J & Houston, Joel F, 1999. "The Value of a Government Monitor for U.S. Banking Firms," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(1), pages 14-34, February.
    7. Rebel A. Cole & Jeffery W. Gunther, 1995. "FIMS: a new monitoring system for banking institutions," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 1-15.
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    Cited by:
    1. Mark M. Spiegel & Nobuyoshi Yamori, 2003. "Determinants of voluntary bank disclosure: evidence from Japanese Shinkin banks," Pacific Basin Working Paper Series 03-03, Federal Reserve Bank of San Francisco.
    2. Otchere, Isaac, 2005. "Do privatized banks in middle- and low-income countries perform better than rival banks? An intra-industry analysis of bank privatization," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2067-2093, August.
    3. Otchere, Isaac, 2009. "Competitive and value effects of bank privatization in developed countries," Journal of Banking & Finance, Elsevier, vol. 33(12), pages 2373-2385, December.
    4. R. Alton Gilbert & Andrew P. Meyer & Mark D. Vaughan, 2006. "Can feedback from the jumbo CD market improve bank surveillance?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 135-175.
    5. Spiegel, Mark M. & Yamori, Nobuyoshi, 2007. "Market price accounting and depositor discipline: The case of Japanese regional banks," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 769-786, March.

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