Do Loan Loss Reserves Behave like Capital? Evidence from Recent Bank Failures

• Main Authors: NG, Jeffrey, Roychowdhury, Sugata
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2014
• Subjects: bank failure; bank risk; regulatory capital; capital adequacy; loan loss reserves; loan loss provisions; Accounting; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/soa_research/1180; https://ink.library.smu.edu.sg/context/soa_research/article/2179/viewcontent/LoanLossReservesBehaveCapital_2014_pp.pdf
• Institution: Singapore Management University

Regulatory capital guidelines allow for loan loss reserves to be added back as capital. The evidence in this paper suggests that the influence of loan loss reserves added back as regulatory capital (hereafter referred to as “add-backs”) on bank risk cannot be explained by either economic principles...