Kinda Hachem argues in Liberty Street Economics for linking bank regulation and accounting discretion

Kinda Hachem argues in Liberty Street Economics for linking bank regulation and accounting discretion

Published December 15, 2025, Kinda Hachem argues in Liberty Street Economics that accounting discretion can make it easier for banks to circumvent regulation while following its letter. She says banks may choose too little capital because they do not account for the costs their failures can impose on other banks, which capital regulation aims to address. But Hachem also identifies benefits of accounting discretion, including timely signals based on firms’ private information and more ways to judge managerial performance. A planner balancing these aims may choose less discretion and a lower capital ratio than would otherwise be optimal, while retaining some discretion if the social cost of circumvention is small. Hachem concludes that future research should examine how discretion and regulation interact across different parts of the balance sheet and different regulatory measures; which combinations avoid the tension remains unknown.

Publication: afeefc27-ae55-4210-5e0d-4141e1367842

attribution — pass: The reading correctly attributes the post to Kinda Hachem in the Federal Reserve Bank of New York's Liberty Street Economics. It presents her points as her arguments rather than as established fact. The post is a single argued piece, not a listing.

Kinda Hachem is a financial research advisor in the Federal Reserve Bank of New York’s Research and Statistics Group.

summary — uncertain: The summary's logic is faithful, but central terms are not explained and no definitions are supplied. A non-specialist is not told that accounting discretion means latitude in how banks report activities for regulatory purposes. Bank capital (loss-absorbing equity, as opposed to deposits) and the social planner are also left undefined. Smallest repairs: add brief plain-language glosses or term-library tooltips. Also note that the planner trade-off holds only under the post's two stated conditions; one concrete example, such as securities classification before March 2023, would help ground it.

capital is a loss-absorbing equity stake that profits if and only if the realized loan return is higher than expected.

date — pass: The stated date, December 15, 2025, matches the post's dateline and the UTC day of evidence.originalPublished. The evidence is a publisher page, so no archive disclosure is required. The reading contains no hindsight framing and presents no forecasts as outcomes.

December 15, 2025 Designing Bank Regulation with Accounting Discretion

support — pass: Each claim matches the source. These include: discretion lowering the cost of circumvention; banks not internalizing spillovers from their failure; the planner choosing less discretion and a lower capital ratio while keeping some discretion; and the open research question about which dimensions. The open question is drawn directly from the post, and the reading adds no unsupported benefits or costs.

More discretion therefore decreases the cost to a bank of undertaking a given amount of regulatory circumvention.

media — pass: No media is selected and none was supplied or verified, so there is no media identity or relevance problem.