Bank Financial Reporting Opacity and Regulatory Intervention

64 Pages Posted: 14 Sep 2016 Last revised: 1 Mar 2021

See all articles by John Gallemore

John Gallemore

University of Chicago - Booth School of Business

Date Written: February 2021

Abstract

I study the association between bank financial reporting opacity, measured by delayed expected loan loss recognition, and the intervention decisions made by bank regulators. Examining U.S. commercial banks during the 2007-2009 financial crisis, I find that delayed expected loan loss recognition is negatively associated with the likelihood of regulatory intervention (measured by either severe enforcement action or closure). This result is robust to using various specifications and research designs. In additional analyses, I find evidence suggesting that this association is driven by regulators exploiting financial reporting opacity to practice forbearance. My findings contribute to the extant literature on bank opacity, regulatory forbearance, and the consequences of loan loss provisioning by suggesting that delayed expected loan loss recognition affects regulatory intervention decisions.

Keywords: regulatory intervention, bank closure, enforcement actions, forbearance, loan loss provisioning, banking crises

JEL Classification: G21, G28, M41

Suggested Citation

Gallemore, John, Bank Financial Reporting Opacity and Regulatory Intervention (February 2021). Available at SSRN: https://ssrn.com/abstract=2838541 or http://dx.doi.org/10.2139/ssrn.2838541

John Gallemore (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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