Business Commons^™

The Role Of Fair Value Accounting In Bank Failures: 2001-2010, Jacob Edward Eugene Spring

CMC Senior Theses

Over the Past two and a half years banks have failed at the fastest pace since the Great Depression. These rapidly mounting bank failures have rekindled a debate surrounding the use of fair value accounting, with many arguing that fair value has exacerbated the severity of the recent financial crisis through asset devaluation and the forced sale of assets in an effort to meet capital requirements. This paper seeks to test if an entity’s exposure to fair value which includes assets available-for-sale, trading assets, and loans held-for-sale as a percent of total assets increases the probability of bank failure through …