Emanuela Giacomini

The Value-relevance of Fair Value Losses and Gains in the Banking Industry

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This paper investigates the value-relevance of fair value realized and unrealized losses and gains and how it varies overtime and across U.S. bank holding companies. We find that FV realized losses/gains related to the trading portfolio and unrealized losses/gains on the available-for-sale and held-to-maturity portfolio are value-relevant in both normal and crisis periods, suggesting that investors find them sufficiently reliable to be reflected in the market value of equity, despite the claim that market illiquidity provided fair values estimates that deviate substantially from fundamental values. Our findings are sensitive to banks' regulatory capital ratios and size. BHCs that are subject to more regulatory pressure have more incentive to overstate fair values, reducing the reliability of FV losses/gains. Furthermore, the market assessed realized and unrealized losses/gains as less valuable for very large banks during the recent financial crisis, supporting the argument of the increase of asset opaqueness and complexity for these institutions.


  • Fair Value Accounting
  • Realized and Unrealized Losses/Gains
  • Level 3 Asset/ Liabilities


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