This paper finds that banking firms’ unexpected loan loss provisions had a significant effect of increasing bank opacity, both before and during the 2007-09 financial crisis. Furthermore, during the financial crisis, the extent to which banks delayed loan loss recognition is found to have had a significant effect on bank opacity, confirming an important concern raised by the Financial Crisis Advisory Group. Overall, banks’ practices in managing reserves seem to have a material impact on their opacity.
Iannotta, Giuliano, and Simon H. Kwan. 2013. “The Impact of Reserves Practices on Bank Opacity,” Federal Reserve Bank of San Francisco Working Paper 2013-35. Available at https://doi.org/10.24148/wp2013-35