Period Of Loss Research Articles

Discretion in bank loan loss allowance, risk taking and earnings management

AbstractWe study whether banks use the allowance for loan losses (ALL) for efficiency or for opportunistic reasons. We find that banks that had higher abnormal ALL during the period prior to the 2007–2009 crisis engaged in less risk taking during the pre‐crisis period and had a lower probability of failure during the crisis period. In testing earnings management to meet or beat earnings benchmarks, we find that abnormal ALL is unrelated to next period's loss avoidance and just meeting or beating the prior year's earnings. Our results suggest that banks use ALL for efficiency and not for opportunistic purposes.

The New York Gossip Magazine in The Great Gatsby

F. Scott Fitzgerald's New York included William D'Alton Mann: hero of Gettysburg, swindler, and publisher of the New York gossip magazine Topics. On 17 May 1920, just over a month after the Fitzgeralds' marriage in the rectory of St. Patrick's Cathedral, Mann died at 80. His death was covered in New York's newspapers, and discussed on New York streets. The media coverage of Mann's death showed New Yorkers had not forgotten, or forgiven, his notorious reputation as the city's most successful blackmailer. As the New York Times obituary showed, New York still remembered Mann's libel trial of 1905-06. The O. J. Simpson trial of its day, the Times recalled that it highly entertaining reading for many days, the testimony being highly spiced throughout. That trial had revealed that several prominent New Yorkers had been almost compelled by the to subscribe to a forthcoming book called Fads and Fancies for sums of five figures in return for the Colonel's promise that certain news items would not appear in Topics. Yet, the Times wryly noted, Colonel Mann, when interviewed by a New York Times reporter, was violent in his denunciation of blackmailers (Colonel Mann Dies). Within this historical context, Fitzgerald's two allusions to the gossip magazine Town Tattle in The Great Gatsby take on greater significance. These small allusions to the magazine Myrtle buys on her way into Manhattan ( Gatsby 27) and keeps copies of in her apartment (29) have never been analyzed, but, like so much else in the novel, these brief references carry considerable symbolic weight. The New Yorkers who made up Fitzgerald's original audience would have recognized these references for what they were: a New York in-joke and an incisive criticism of the period's loss of moral direction with the rise of the gossip industry and the beginnings of America's celebrity culture. These passing allusions also give us an insight into Fitzgerald's personal history as a writer, since they show that he noticed the conversations around him that first spring he and Zelda spent in New York, and understood their importance. In his satire of Topics as Town Tattle, Fitzgerald provided his early readers with a timely and relevant critique because when The Great Gatsby was published in 1925, Mann, his magazine, and his blackmail were still fresh on the lips of New Yorkers.

Inflation Stabilization and Welfare: The Case of a Distorted Steady State

This paper considers the appropriate stabilization objectives for monetary policy in a microfounded model with staggered price-setting. Rotemberg and Woodford (1997) and Woodford (2002) have shown that under certain conditions, a local approximation to the expected utility of the representative household in a model of this kind is related inversely to the expected discounted value of a conventional quadratic loss function, in which each period's loss is a weighted average of squared deviations of inflation and an output gap measure from their optimal values (zero). However, those derivations rely on an assumption of the existence of an output or employment subsidy that offsets the distortion due to the market power of monopolistically-competitive price-setters, so that the steady state under a zero-inflation policy involves an efficient level of output. Here we show how to dispense with this unappealing assumption, so that a valid linear-quadratic approximation to the optimal policy problem is possible even when the steady state is distorted to an arbitrary extent (allowing for tax distortions as well as market power), and when, as a consequence, it is necessary to take account of the effects of stabilization policy on the average level of output. We again obtain a welfare-theoretic loss function that involves both inflation and an appropriately defined output gap, though the degree of distortion of the steady state affects both the weights on the two stabilization objectives and the definition of the welfare-relevant output gap. In the light of these results, we reconsider the conditions under which complete price stability is optimal, and find that they are more restrictive in the case of a distorted steady state. We also consider the conditions under which pure randomization of monetary policy can be welfare-improving, and find that this is possible in the case of a sufficiently distorted steady state, though the parameter values required are probably not empirically realistic.