Review of Accounting Studies

, Volume 22, Issue 4, pp 1698–1731 | Cite as

The IFRS option to reclassify financial assets out of fair value in 2008: the roles played by regulatory capital and too-important-to-fail status

  • Peter Fiechter
  • Wayne R. LandsmanEmail author
  • Kenneth Peasnell
  • Annelies Renders


Amendment of IAS 39 by the IASB in 2008 provided an option to reclassify investments from fair value to historical cost. We predict that too-important-to-fail (TITF) banks took less advantage of this option because the political protection they enjoyed insulated them from regulatory pressure. Banks that did not enjoy this protection had greater reason to make use of this option since doing so would protect their Tier 1 capital. As predicted, findings reveal that TITF banks made less use of the reclassification option to protect their Tier 1 capital and there is a significant moderating influence of TITF status on the incentive to reclassify investments for banks with lower regulatory capital. This finding is consistent with TITF banks placing less weight on protecting regulatory capital and thereby retaining flexibility to sell assets. Our findings provide evidence that accounting choices are affected by the importance of banks to their economies.


Too important to fail Fair value accounting Bank regulation Financial crisis 

JEL classification

G14 G21 G28 M41 M48 



We thank Patricia Dechow (editor), two anonymous reviewers, Justin Chircop, Sunhwa Choi, John Gallemore, Thorsten Sellhorn, Christian Stadler, and workshop participants at the Cambridge Financial Accounting Symposium, the EAA Annual Congress, the Joint Workshop of Deutsche Bundesbank and the Research Task Force of the Basel Committee on Banking Supervision for helpful comments. Annelies Renders acknowledges financial support from the NWO (Veni Research Grant 016.135.086).


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Copyright information

© Springer Science+Business Media, LLC 2017

Authors and Affiliations

  • Peter Fiechter
    • 1
  • Wayne R. Landsman
    • 2
    Email author
  • Kenneth Peasnell
    • 3
  • Annelies Renders
    • 4
  1. 1.Faculty of Economics and BusinessUniversity of NeuchatelNeuchatelSwitzerland
  2. 2.Kenan-Flagler Business SchoolUniversity of North Carolina at Chapel HillChapel HillUSA
  3. 3.The Management SchoolLancaster UniversityLancasterUK
  4. 4.Maastricht University School of Business and EconomicsMaastrichtThe Netherlands

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