'An anecdote-based polemic about forbearance through accounting during the financial crisis'
Roughly, capital is the excess of a bank’s asset value over its obligations. The maintenance of a minimum level of capital is central to bank regulation. Formally, by and large US banks complied with this requirement in 2007-2009, with some margin to spare. Could self-serving accounting have produced the apparent high capital? Possibly, formal compliance was enabled by taking liberties with the rules of accounting, which the regulators allowed. The lecture will review a few egregious instances of apparent failure to enforce the accounting rules which enabled the banks to inflate their capital. More vigilant regulators might have forced the banks to raise more capital early on in the crisis, thereby rendering it less harmful.
Lecture hall M3.02