Comments on: Regulatory datapoint of the day, SEC edition http://blogs.reuters.com/felix-salmon/2009/06/23/regulatory-datapoint-of-the-day-sec-edition/ A slice of lime in the soda Tue, 18 Jun 2013 21:59:52 +0000 hourly 1 http://wordpress.org/?v=3.4.2 By: Sandrew http://blogs.reuters.com/felix-salmon/2009/06/23/regulatory-datapoint-of-the-day-sec-edition/comment-page-1/#comment-3070 Sandrew Tue, 23 Jun 2009 17:27:10 +0000 http://blogs.reuters.com/felix-salmon/2009/06/23/regulatory-datapoint-of-the-day-sec-edition/#comment-3070 One man's "prudent... beefing up... [of] reserves in anticipation... [of a less healthy] economic environment" is another man's cookie jar earnings-smoothing shenanigans. I guess I come down closer to the side of the SEC in this particular case, which should not be interpreted as an endorsement. Perhaps because I never bought the argument that accounting rules can be somehow "pro-cyclical" (whatever that means). One man’s “prudent… beefing up… [of] reserves in anticipation… [of a less healthy] economic environment” is another man’s cookie jar earnings-smoothing shenanigans.

I guess I come down closer to the side of the SEC in this particular case, which should not be interpreted as an endorsement. Perhaps because I never bought the argument that accounting rules can be somehow “pro-cyclical” (whatever that means).

]]> By: Mitch http://blogs.reuters.com/felix-salmon/2009/06/23/regulatory-datapoint-of-the-day-sec-edition/comment-page-1/#comment-3069 Mitch Tue, 23 Jun 2009 17:20:40 +0000 http://blogs.reuters.com/felix-salmon/2009/06/23/regulatory-datapoint-of-the-day-sec-edition/#comment-3069 Tom, That's true only if the bank then does not assume more liabilities. As we've seen in banking recently, more equity more more opporutunities to leverage that equity. Thus, when the inevitable losses occur, the bank then becomes overleveraged without sufficient reserves. Tom,
That’s true only if the bank then does not assume more liabilities. As we’ve seen in banking recently, more equity more more opporutunities to leverage that equity. Thus, when the inevitable losses occur, the bank then becomes overleveraged without sufficient reserves.

]]> By: Tom Lindmark http://blogs.reuters.com/felix-salmon/2009/06/23/regulatory-datapoint-of-the-day-sec-edition/comment-page-1/#comment-3065 Tom Lindmark Tue, 23 Jun 2009 17:01:29 +0000 http://blogs.reuters.com/felix-salmon/2009/06/23/regulatory-datapoint-of-the-day-sec-edition/#comment-3065 If profits go to retained earnings instead of a loan loss reserve what's the difference? You just reverse the flow when loan losses increase. There would be a difference if profits were paid out in the form of dividends but I don't believe that happened. Net, net there shouldn't be any effect on overall solvency. If profits go to retained earnings instead of a loan loss reserve what’s the difference? You just reverse the flow when loan losses increase. There would be a difference if profits were paid out in the form of dividends but I don’t believe that happened. Net, net there shouldn’t be any effect on overall solvency.

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