Bank Financial Reporting Opacity and Regulatory Intervention

Review of Accounting Studies, forthcoming

64 Pages Posted: 14 Sep 2016 Last revised: 14 Jan 2022

See all articles by John Gallemore

John Gallemore

University of North Carolina Kenan-Flagler Business School

Date Written: January 2022

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 2007-09 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 (January 2022). Review of Accounting Studies, forthcoming, Available at SSRN: https://ssrn.com/abstract=2838541 or http://dx.doi.org/10.2139/ssrn.2838541

John Gallemore (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

HOME PAGE: http://www.johngallemore.com

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
906
Abstract Views
5,089
rank
38,782
PlumX Metrics