Financial crisis and international supervision: New evidence on the discretionary use of loan loss provisions at Euro Area commercial banks

Curcio, D., De Simone, A. & Gallo, A. (2017). Financial crisis and international supervision: New evidence on the discretionary use of loan loss provisions at Euro Area commercial banks. The British Accounting Review, 49(2), pp. 181-193. doi: 10.1016/j.bar.2016.09.001

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Abstract

We examine the discretionary use of loan loss provisions during the recent financial crisis, when Euro Area banks experienced not only a negatuve effect on the quality of their loans and a reduction in their profitability, but were also subject to a new form of stricter supervision, namely the EBA 2010 and 2011 stress test exercises. Overall, we find support for the only income smoothing hypothesis and we do not observe any difference in listed banks'behavior when compared to unlisted banks. Banks subject to EBA stress tests had higher incentives to smooth income only for the 2011 EBA exercise when a larger and more detailed set of information was released. This may suggest an unwilled side effect that accounting setters and banking regulators and supervisors should account for.

Item Type: Article
Additional Information: © 2017, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Uncontrolled Keywords: Capital management; Income smoothing; Supervisory stress testing
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/17574

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