Financial accounting in the banking industry: A review of the empirical literature

We survey research on banks׳ financial accounting. After providing a brief background of the theoretical models and accounting and regulatory institutions underlying the bank accounting literature, we review three streams of empirical research. Specifically we review studies associating bank financial reporting with the valuation and risk assessments, associating bank financial reporting discretion with regulatory capital and earnings management, and examining banks’ economic decisions under differing accounting regimes. We discuss what we have already learned and about what else we would like to know. We also discuss methodological challenges associated with predicting the effects of alternative accounting and regulatory capital regimes. •We survey research on financial accouting in the banking industry.•We focus on three streams of empirical research.•We review the relation between bank financial reporting and the valuatinon and risk assessmtens of outside equity and debt.•We rievew the relation between bank financial reporting discretion, regulatory capital and earnings management.•We review banks′ economic decisions under differing accouting regimes.