Loan loss reserve accounting and bank behavior

Balla, Eliana; Romero, Jessica Sackett; Rose, Morgan J.

Briefing

Loan loss reserve accounting and bank behavior

Abstract: The rules governing banks' loan loss provisioning and reserves require a trade-off between the goals of bank regulators, who emphasize safety and soundness, and the goals of accounting standard setters, who emphasize the transparency of financial statements. A strengthening of accounting priorities in the decade prior to the financial crisis was associated with a decrease in the level of loan loss reserves in the banking system.

Keywords: Financial markets; Financial institutions;