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UBC Theses and Dissertations

Post-2008-crisis bank reforms : studies on the real effects of loan loss accounting and the role of banks as information intermediaries Yang, Hsiang-Chieh


This thesis examines the consequences of two post-2008 financial crisis bank reforms in two studies. The first study explores the consequences of a new accounting rule for recognizing loan losses, the current expected credit loss model (CECL). CECL requires banks to expense their expected credit losses when a loan is issued, rather than when an event occurs that could make the loan uncollectable, as required by CECL’s predecessor accounting standard. Requiring earlier recognition of loan losses is likely to require banks to prepare more regulatory capital, decreasing their willingness to lend. Empirically, I find that following the approval of CECL, more capital-constrained banks reduce their loan growth rates. The reduced loan growth is stronger for real estate loans, which typically have a longer term to maturity, and for banks operating under a more lenient regulator. Using county-level loan origination data, I also find that more capital-constrained banks originate fewer small business loans. One key takeaway of this study is that when evaluating the effects of a new accounting change, policymakers should also consider the changes in economic behaviors that occur before the effective date of the change, rather than only focusing on the time after it becomes effective. In the second study, we examine the consequences of the Volcker Rule, which prohibits banks from conducting proprietary trading. The Volcker Rule aims to reduce the likelihood of future financial crises by discouraging banks from taking on too much risk. However, prior research finds that corporate bond liquidity (i.e., the ease of trading public bonds) has decreased after the Volcker Rule. This study utilizes the Volcker Rule as a bond liquidity shock to investigate whether the loss of bond liquidity motivates bond issuing firms to increase their voluntary disclosures. Using a difference-in-difference design, we find that bond issuers are more likely to increase their management guidance after the Volcker Rule was implemented. Further, the increased management guidance is more pronounced for firms with credit ratings close to the investment-grade cutoff, rather than those with very high or very low ratings, where firms have less ability to change market perceptions by their disclosures.

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