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wp09207.pdf


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Contents

Page

I. Introduction ............................................................................................................................3
II. Tobin’s q Value and Market Discounts.................................................................................7
III. The Data...............................................................................................................................8
IV. Market Discounts and Valuation Effects of Real Estate Related Assets...........................12
A. Empirical Evidence on Market Discounts ..............................................................12
B. Banks’ Stock Price Reaction to Amendments of Fair Value Accounting Rules ....16
V. Accounting Discretion on Impaired Assets and Asset Classification.................................18
A. Accounting Discretion on Accounting for Bad Loans............................................18
B. Classification of Mortgage-Backed Securities........................................................20
VI. Conclusions........................................................................................................................21
References................................................................................................................................24
Appendix
Variable Definitions and Data Sources....................................................................................29
Tables
1. Summary Statistics for 2008, Quarterly Data...................................................................... 30
2. Tobin’s q and Real Estate Related Assets in 2008...............................................................31
3. Tobin’s q and Real Estate Related Assets in 2001-2007......................................................32
4. Tobin's q Real Estate Related Assets and Asset Size...........................................................33
5. Tobin’s q and Additional Balance Sheet and Off-balance Sheet Items ...............................34
6. Event Study of New FASB Rules on Fair Value Accounting for
Illiquid Assets (FAS 157), Announced on October 10, 2008............................................35
7. Event Study of FASB Amendments to Fair Value Accounting of
Hard-to-Value Assets, Announced on April 9, 2009........................................................36
8. Loan Loss Provisions and Net Loan Charge-offs in 2008....................................................37
9. Share of Mortgage-backed Securities that is Held-to-Maturity in 2008...............................38
10. Share of Non-Guaranteed Mortgage-backed Securities that is Held-to-Maturity
in 2001-2007....................................................................................................................39
Figures
1. Tobin’s q and Share of Zombie Banks.................................................................................40
2. Real Estate Loans and Mortgage-backed Securities.............................................................40
3. Share of Mortgage-backed Securities that is Held-to-Maturity............................................40
4. Fair Value of Mortgage-backed Securities Relative to Amortized Cost..............................41
5. Tier 1 Capital Ratio and Share of Tier 1 Capital in Total Capital........................................41