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Working Paper
The Theory of Financial Stability Meets Reality
Boyarchenko, Nina; Hachem, Kinda; Kleymenova, Anya V. (2025-08-04)
A large literature at the intersection of economics and finance offers prescriptions for regulating banks to increase financial stability. This literature abstracts from the discretion that accounting standards give banks over financial reporting, creating a gap between the information assumed to be available to regulators in models of optimal regulation and the information available to regulators in reality. We bridge insights from the economics, finance, and accounting literatures to synthesize knowledge about the design and implementation of bank regulation and identify areas where more ...
Finance and Economics Discussion Series , Paper 2025-054

Working Paper
Current Expected Credit Losses (CECL) Standard and Banks' Information Production
Kim, Sehwa; Kim, Seil; Kleymenova, Anya V.; Li, Rongchen (2023-09-29)
We examine whether the adoption of the current expected credit losses (CECL) model, which reflects forward-looking information in loan loss provisions (LLP), improves banks’ information production. Consistent with better information production, we find changes in CECL banks' financial reporting and operations. First, these banks' loan loss provisions become timelier and better reflect future local economic conditions. Second, CECL banks disclose longer, more forward-looking, and more quantitative LLP information. Lastly, they have fewer loan defaults after adopting CECL. These improvements ...
Finance and Economics Discussion Series , Paper 2023-063

Journal Article
Profits and balance sheet developments at U.S. commercial banks in 2005
Klee, Elizabeth C.; Weinbach, Gretchen C. (2006-06)
Federal Reserve Bulletin , Volume 92 , Issue Jun

Working Paper
Information Production, Misconduct Effort, and the Duration of Corporate Fraud
Pinheiro, Roberto; Black, Jonathan; Nilsson, Mattias; da Silva, Maximiliano (2016-06-01)
We develop and test a model linking the duration of financial fraud to information produced by auditors and analysts and efforts by managers to conceal the fraud. Our empirical results suggest fraud termination is more likely in the quarter following the release of audited financial statements, especially when reports contain explanatory language, indicating auditors? observable signals reduce fraud duration. Analyst attention increases the likelihood of fraud termination, but the marginal effect beyond the first analyst is negative, possibly due to free riding and herding behavior impairing ...
Working Papers (Old Series) , Paper 1613

Discussion Paper
Designing Bank Regulation with Accounting Discretion
Hachem, Kinda (2025-12-15)
Why does the banking industry remain prone to large and costly disruptions despite being so heavily regulated? Is there a need for more regulation, less regulation, or simply different regulation? Our recent Staff Report combines insights from academic research in economics, finance, and accounting to provide a deeper understanding of the challenges involved in designing and implementing bank regulation, as well as opportunities for future exploration. This post focuses on the regulation of bank capital, but the ideas are applicable more broadly.
Liberty Street Economics , Paper 20251215

Working Paper
Monetary Policy Exposure of Banks and Loan Contracting
Degerli, Ahmet; Wang, Jing (2026-02-02)
We provide evidence that banks use loan covenants to prepare for future monetary policy tightening, thereby facilitating the bank lending channel of monetary policy transmission. Specifically, banks with greater monetary policy exposure—those whose lending capacity contracts more as the federal funds rate increases—include stricter financial covenants in loan contracts, granting them flexibility to reduce existing loan commitments during monetary policy tightening when firms breach covenants. The resulting credit reductions to covenant violators by high-exposure banks account for over ...
Finance and Economics Discussion Series , Paper 2026-008

Journal Article
Transparency, accounting discretion, and bank stability
Bushman, Robert M. (2016-08)
This article examines the consequences of accounting policy choices for individual banks? downside tail risk, for the codependence of such risk among banks, and for regulatory forbearance, or the decision by a regulator not to intervene. The author synthesizes recent research that provides robust empirical evidence for two effects of discretionary accounting policy choices by banks. First, these choices degrade transparency, an outcome that increases financing frictions, inhibits market discipline of bank risk taking, and allows regulatory forbearance. Second, they exacerbate capital adequacy ...
Economic Policy Review , Issue Aug , Pages 129-149

Working Paper
Accounting for Central Neighborhood Change, 1980-2010
Hartley, Daniel; Baum-Snow, Nathaniel (2016-09-07)
Neighborhoods within 2 km of most central business districts of U.S. metropolitan areas experienced population declines from 1980 to 2000 but have rebounded markedly since 2000 at greater pace than would be expected from simple mean reversion. Statistical decompositions reveal that 1980-2000 departures of residents without a college degree (of all races) generated most of the declines while the return of college educated whites and the stabilization of neighborhood choices by less educated whites promoted most of the post-2000 rebound. The rise of childless households and the increase in the ...
Working Paper Series , Paper WP-2016-9

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