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

Critics 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.

This is the peer reviewed version of the following article: [Have SFAS 166 and SFAS 167 improved the financial reporting for securitizations?. Journal of Business Finance & Accounting 47, 7-8 p821-857 (2020)], which has been published in final form at https://doi.org/10.1111/jbfa.12449. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions: https://authorservices.wiley.com/author-resources/Journal-Authors/licensing/self-archiving.html#3.

Files

  • ABBRVY_FAS_166.docx

    size: 176 KB | mime_type: application/vnd.openxmlformats-officedocument.wordprocessingml.document | date: 2023-06-19 | sha256: e0199f9

Metadata

Work Title Have SFAS 166 and SFAS 167 improved the financial reporting for securitizations?
Access
Open Access
Creators
  1. Minkwan Ahn
  2. Samuel B. Bonsall
  3. Zahn Bozanic
  4. Yiwei Dou
  5. Gordon Richardson
  6. Dushyantkumar Vyas
Keyword
  1. Securitization
  2. Securitization accounting
  3. FASB
  4. SFAS 166 and 167
  5. Financial reporting
  6. Off-balance sheet
  7. Risk relevance
  8. Real effects
License In Copyright (Rights Reserved)
Work Type Article
Publisher
  1. Journal of Business Finance and Accounting
Publication Date March 2, 2020
Publisher Identifier (DOI)
  1. https://doi.org/10.1111/jbfa.12449
Deposited June 19, 2023

Versions

Analytics

Collections

This resource is currently not in any collection.

Work History

Version 1
published

  • Created
  • Added ABBRVY_FAS_166.docx
  • Added Creator Minkwan Ahn
  • Added Creator Samuel B. Bonsall
  • Added Creator Zahn Bozanic
  • Added Creator Yiwei Dou
  • Added Creator Gordon Richardson
  • Added Creator Dushyantkumar Vyas
  • Published
  • Updated Keyword, Publication Date Show Changes
    Keyword
    • Securitization, Securitization accounting, FASB, SFAS 166 and 167, Financial reporting, Off-balance sheet, Risk relevance, Real effects
    Publication Date
    • 2020-07-01
    • 2020-03-02
  • Updated