PhD defence: Jeff Downing

On Monday 9 September Jeff Downing will hold a trial lecture on a prescribed topic, and defend his thesis for the PhD degree at NHH.

The thesis focuses on the impact of accounting standards on the investment decisions of banks. Accounting standards are rules that govern how companies calculate and report their results. Hence, accounting standards measure the results of companies' operations. Companies, however, can undertake investments whose purpose is to improve their reported results. Accounting standards can in this way affect a company's operations.

Downing focuses to a large degree on how certain accounting standards influence banks in ways that increase systemic risk. Systemic risk means the collapse of the entire financial sector, not only one or two banks. Such occurrences have large negative consequences for society, as during the financial crisis that began in 2007. Hence, it is important to reduce systemic risk so as to ensure that another crisis does not occur.

The thesis shows how "fair-value accounting" (FVA) can increase systemic risk. FVA requires banks to use market values to value their assets. During a crisis, the price of banks' assets declines. Hence, FVA can lead to large losses by requiring banks to write down the value of their assets. This can lead to large losses for many banks. Hence, systemic risk increases, so that a crisis can become worse. Hence, the costs to society can become larger.

The trial lecture and thesis defense will be open to the public. Copies of the thesis will be available from: bib@nhh.no