THE COST OF COMPLIANCE: THE EFFECTS OF REGULATORY ACCOUNTING PROCEDURES ON THE SAVINGS AND LOAN CRISIs

Abstract

This study examines the impact of regulatory accounting procedures (RAP) on the Savings and Loan (S&L) crisis in the US during the 1980s. The study highlights how RAP resulted in unintended consequences that led to one of the most significant bank collapses in the US since the Great Depression of 1929. RAP afforded S&Ls the ability to defer loan gains and losses, which altered financial reporting standards. This led to S&Ls being able to accumulate deferred losses for hedging operations and selling low-yielding long-term assets, resulting in further complications as S&Ls transitioned between RAP and GAAP. The study highlights the unintended consequences of regulatory accounting procedures, adding to the accounting literature. It cautions regulatory bodies to be careful when considering their actions because even well-intentioned regulations can have unintended consequences