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Article: Have SFAS 166 and SFAS 167 improved the financial reporting for securitizations?

TitleHave SFAS 166 and SFAS 167 improved the financial reporting for securitizations?
Authors
KeywordsFASB
financial reporting
off‐balance sheet
real effects
risk relevance
Issue Date2020
PublisherBlackwell Publishing Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/JBFA
Citation
Journal of Business Finance & Accounting, 2020, Epub 2020-03-02 How to Cite?
AbstractCritics have alleged that securitization accounting prior to 2010 was among the causes of the recent financial crisis. In response to this criticism, the Financial Accounting Standards Board (FASB) implemented two new accounting standards, SFAS 166 and SFAS 167, to improve the financial reporting for securitizations. Bank regulators have stated their belief that SFAS 166/167 will result in a consolidated balance sheet (and risk‐based capital ratios based thereupon) that better reflects a bank's exposure to risk related to securitized assets. We document that, by ceding retained power or influence through the servicing/special servicing functions to third parties, SFAS 166/167 resulted in real effects to the extent that banks (particularly those that were weakly capitalized) achieved their accounting objectives in the post‐SFAS 166/167 period through legitimate transaction structuring in line with the intent of the new rules. Further, we use capital market participants’ assessments of risk retention by sponsoring banks as a benchmark, and provide evidence consistent with bank regulators’ beliefs. In particular, following SFAS 166/167, equity investors of sponsoring banks do not consider (consider) as risk relevant securitized assets that receive off‐balance sheet (on‐balance sheet) treatment. Securitized assets that are consolidated under SFAS 166/167 exhibit the same risk relevance as assets that are not securitized, despite contractual provisions that would seem to imply substantial risk transfer.
Persistent Identifierhttp://hdl.handle.net/10722/281851
ISSN
2019 Impact Factor: 1.473
2015 SCImago Journal Rankings: 0.716
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorAhn, M-K-
dc.contributor.authorBonsall, SB-
dc.contributor.authorBozanic, Z-
dc.contributor.authorDou, Y-
dc.contributor.authorRichardson, G-
dc.contributor.authorVyas, D-
dc.date.accessioned2020-04-03T07:22:41Z-
dc.date.available2020-04-03T07:22:41Z-
dc.date.issued2020-
dc.identifier.citationJournal of Business Finance & Accounting, 2020, Epub 2020-03-02-
dc.identifier.issn0306-686X-
dc.identifier.urihttp://hdl.handle.net/10722/281851-
dc.description.abstractCritics have alleged that securitization accounting prior to 2010 was among the causes of the recent financial crisis. In response to this criticism, the Financial Accounting Standards Board (FASB) implemented two new accounting standards, SFAS 166 and SFAS 167, to improve the financial reporting for securitizations. Bank regulators have stated their belief that SFAS 166/167 will result in a consolidated balance sheet (and risk‐based capital ratios based thereupon) that better reflects a bank's exposure to risk related to securitized assets. We document that, by ceding retained power or influence through the servicing/special servicing functions to third parties, SFAS 166/167 resulted in real effects to the extent that banks (particularly those that were weakly capitalized) achieved their accounting objectives in the post‐SFAS 166/167 period through legitimate transaction structuring in line with the intent of the new rules. Further, we use capital market participants’ assessments of risk retention by sponsoring banks as a benchmark, and provide evidence consistent with bank regulators’ beliefs. In particular, following SFAS 166/167, equity investors of sponsoring banks do not consider (consider) as risk relevant securitized assets that receive off‐balance sheet (on‐balance sheet) treatment. Securitized assets that are consolidated under SFAS 166/167 exhibit the same risk relevance as assets that are not securitized, despite contractual provisions that would seem to imply substantial risk transfer.-
dc.languageeng-
dc.publisherBlackwell Publishing Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/JBFA-
dc.relation.ispartofJournal of Business Finance & Accounting-
dc.rightsThe definitive version is available at www.blackwell-synergy.com-
dc.subjectFASB-
dc.subjectfinancial reporting-
dc.subjectoff‐balance sheet-
dc.subjectreal effects-
dc.subjectrisk relevance-
dc.titleHave SFAS 166 and SFAS 167 improved the financial reporting for securitizations?-
dc.typeArticle-
dc.identifier.emailAhn, M-K: mahn@hku.hk-
dc.identifier.authorityAhn, M-K=rp01918-
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1111/jbfa.12449-
dc.identifier.scopuseid_2-s2.0-85082924721-
dc.identifier.hkuros309661-
dc.identifier.volumeEpub 2020-03-02-
dc.identifier.isiWOS:000523219900001-
dc.publisher.placeUnited Kingdom-
dc.identifier.issnl0306-686X-

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