IDEAS home Printed from https://ideas.repec.org/p/ecl/stabus/3047.html
   My bibliography  Save this paper

Bank Earnings and Regulatory Capital Management Using Available for Sale Securities

Author

Listed:
  • Barth, Mary E.

    (Stanford University)

  • Gomez-Biscarri, Javier

    (Universitat Pompeu Fabra and Barcelona GSE)

  • Kasznik, Ron

    (Stanford University)

  • Lopez-Espinosa, German

    (Universidad Navarra)

Abstract

We address banks' use of available-for-sale (AFS) securities to manage earnings and regulatory capital. Although prior research investigates banks' use of realized securities gains and losses to smooth earnings and regulatory capital, results are mixed. Creation of AFS securities and enhanced disclosures permit more powerful tests and new insights. We find banks realize gains and losses on AFS securities to smooth earnings and regulatory capital, and banks with more accumulated unrealized gains and losses do so to a greater extent. Banks with negative earnings realize losses to take a big bath, unless they have accumulated unrealized gains that offset the negative earnings. If so, they smooth earnings. Our inferences apply to non-listed and listed banks, which suggests the incentives do not derive solely from public capital market pressures. Our findings reveal the discretion afforded by historical cost-based accounting for AFS securities gains and losses enables banks to manage earnings and regulatory capital.

Suggested Citation

  • Barth, Mary E. & Gomez-Biscarri, Javier & Kasznik, Ron & Lopez-Espinosa, German, 2014. "Bank Earnings and Regulatory Capital Management Using Available for Sale Securities," Research Papers 3047, Stanford University, Graduate School of Business.
  • Handle: RePEc:ecl:stabus:3047
    as

    Download full text from publisher

    File URL: http://www.gsb.stanford.edu/faculty-research/working-papers/bank-earnings-regulatory-capital-management-using-available-sale
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Justin Chircop & Zoltán Novotny-Farkas, 2014. "The economic consequences of including fair value adjustments to shareholders’ equity in regulatory capital calculations," CERS-IE WORKING PAPERS 1426, Institute of Economics, Centre for Economic and Regional Studies.
    2. Fernandes, Marcelo & Igan, Deniz & Pinheiro, Marcelo, 2020. "March madness in Wall Street: (What) does the market learn from stress tests?," Journal of Banking & Finance, Elsevier, vol. 112(C).
    3. Mittal, Amit & Garg, Ajay Kumar, 2016. "How do Indian firms cope with a crisis? Earnings management characteristics of CNX Nifty 100 companies," MPRA Paper 85353, University Library of Munich, Germany.
    4. Isabel Argimón & Ángel Estrada & Michel Dietsch, 2015. "Prudential filters, portfolio composition and capital ratios in european banks," Working Papers 1538, Banco de España;Working Papers Homepage.
    5. Argimón, Isabel & Dietsch, Michel & Estrada, Ángel, 2018. "Prudential filters, portfolio composition at fair value and capital ratios in European banks," Journal of Financial Stability, Elsevier, vol. 39(C), pages 187-208.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecl:stabus:3047. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/gsstaus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.