Preparing for the Next Financial Crisis

Incentives 83

with the exception of large investment banks. In addition, existing account-

ing rules oered a lot of exibility: many nancial institutions in the US and

in Europe were following “mixed attribute” models rather than a pure fair

value or historical cost accounting system. In addition, Huizinga and Laeven

(2012) note that the US banks that held higher levels of mortgage- backed

securities were opportunistically less likely to make timely write- downs and

had less loan loss provisions than the others, which reects either the exi-

bility of accounting rules or the forbearance of the auditors and regulators.

Accounting statements are an important ingredient of corporate governance as

they are the primary source of veried infor