A Consideration of Accounting Roles in the Market Discipline-Based Prudential Regulation of Banks

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The main issue of this Research is to consider the supporting role of the accounting for the market discipline-based prudential regulation of bank. This Research, then, especially pay the attention to the influence of the tax effect accounting on the capital adequacy ratio regulation. The important findings from this Research are following:First, the banks that recorded the high revel ratio of deferred tax assets to the total equity capital still carried over the large amount of non-performing loans.Second, these banks furthermore recorded lean ordinary operating income for past three years, which resulted in the extremely high ratio of the total amount of the deferred tax assets and the non-performing loans to the average ordinary operating income for past three years.These findings suggest that it is considerably doubtful whether these banks recover the deferred tax assets or not through the charge to the future taxable income. Then, this Research present the concluding propositions:First, when the recoverability of the deferred tax assets are judged according to the past profitability, it is to be used the profit before the deduction of non-ordinary write-off in the non-performing loans so that the banks which promptly disposed the non-performing loans would not be underestimated in the capital adequacy ratio.Second, when the recoverability of the deferred tax assets are judged according to the future profitability, it is to be considered the undisposed non-performing loans so that the banks which has yet the large amount of bad debts should be severely valued in the capital adequacy ratio.