Banks, Risk and Fas 105 Disclosures

JOURNAL OF ACCOUNTING AUDITING AND FINANCE, Vol 11, No 3, Summer 1996

Posted: 16 Jun 1998

See all articles by Mary Lea McAnally

Mary Lea McAnally

Texas A&M University - Department of Accounting

Abstract

This study examines whether Financial Accounting Standard No. 105 (FAS105) footnote disclosures of off-balance-sheet financial instruments and derivatives provide risk-relevant information in addition to that provided by the balance sheet alone. A theoretical model relates market and industry risk measures to FAS105 disclosures. Empirical tests of the model reveal that these disclosures do provide risk-relevant numbers although the results are not uniformly strong. The balance sheet financial instruments explain 42 percent of the variation in market risk and 45 percent of the variation in industry-level risk among 499 U.S. commercial bank holding companies. FAS105 disclosures of off-balance-sheet instruments and derivative positions, explain an additional 5 to 7 percent of the variation. Stronger evidence is presented that shows that certain controversial classes of derivatives are not associated with increased levels of market and industry risk. This latter evidence stands in contrast to the current notion that derivative contracts, especially interest rate and currency swaps, increase overall bank riskiness. Results also corrovorate the FASB categorization of classes of financial instruments along two important risk dimensions: credit risk and market risk.

JEL Classification: M41, M45, G12

Suggested Citation

McAnally, Mary Lea, Banks, Risk and Fas 105 Disclosures. JOURNAL OF ACCOUNTING AUDITING AND FINANCE, Vol 11, No 3, Summer 1996. Available at SSRN: https://ssrn.com/abstract=2648

Mary Lea McAnally (Contact Author)

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
United States
979-845-5017 (Phone)
979-845-0014 (Fax)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,864
PlumX Metrics