Accounting Standards, Capital Regulation and Credit Supply: A Reduced-form and Structural Analysis
| dc.contributor.advisor | Sivaramakrishnan, Shiva | |
| dc.creator | Liu, Xiao | |
| dc.date.accessioned | 2023-08-09T19:24:16Z | |
| dc.date.created | 2023-05 | |
| dc.date.issued | 2023-04-21 | |
| dc.date.submitted | May 2023 | |
| dc.date.updated | 2023-08-09T19:24:16Z | |
| dc.description.abstract | Prior research has examined how accounting rules and capital regulation each impact bank lending, but few studies have investigated their combined effects. In this dissertation, I propose and test the thesis that bank capitalization and loan-loss reserving jointly affect credit supply during economic downturns. Specifically, I use the Global Financial Crisis as a context to analyze the usability of capital buffers in conjunction with the adequacy of loan-loss reserving. Contrary to conventional wisdom that capital buffers mitigate procyclicality in lending, my analysis reveals that both high and low regulatory capital buffer banks reduced lending during the crisis. More importantly, crisis-lending is inversely related to the size of the buffer for high regulatory buffer banks. This result suggests that these banks likely had higher risk exposures in their loan portfolios prior to the crisis and faced the prospect of greater unexpected losses. Moreover, I show that adequate loan-loss reserving under the prevailing accounting rules (the Incurred Loss method or ICL) reduces pro-cyclicality for both low and high regulatory capital buffer banks. Furthermore, I investigate the efficacy of the new Current Expected Credit Loss (CECL) model. The CECL model was implemented with the intent of inducing banks to set aside sufficient loan-loss reserves. By calibrating a loan portfolio migration model, I find that under CECL, banks hold less capital, earn lower profits, and lend less during both expansion and contraction periods. Additionally, provisions surge more dramatically under CECL following an unanticipated contraction, hindering lending and profitability. These results suggest that lending is more pro-cyclical under CECL than ICL, despite its intended purpose to maintain credit supply and reduce procyclicality. | |
| dc.embargo.lift | 2023-11-01 | |
| dc.embargo.terms | 2023-11-01 | |
| dc.format.mimetype | application/pdf | |
| dc.identifier.citation | Liu, Xiao. "Accounting Standards, Capital Regulation and Credit Supply: A Reduced-form and Structural Analysis." (2023) Diss., Rice University. <a href="https://hdl.handle.net/1911/115191">https://hdl.handle.net/1911/115191</a>. | |
| dc.identifier.uri | https://hdl.handle.net/1911/115191 | |
| dc.language.iso | eng | |
| dc.rights | Copyright is held by the author, unless otherwise indicated. Permission to reuse, publish, or reproduce the work beyond the bounds of fair use or other exemptions to copyright law must be obtained from the copyright holder. | |
| dc.subject | Banking | |
| dc.subject | Accounting Standards | |
| dc.subject | Prudential Regulation | |
| dc.subject | Credit Supply | |
| dc.title | Accounting Standards, Capital Regulation and Credit Supply: A Reduced-form and Structural Analysis | |
| dc.type | Thesis | |
| dc.type.material | Text | |
| thesis.degree.department | Business | |
| thesis.degree.discipline | Business | |
| thesis.degree.grantor | Rice University | |
| thesis.degree.level | Doctoral | |
| thesis.degree.name | Doctor of Philosophy |
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