Loan Fair Value Disclosures and Deposit Flows

Using a large sample of U.S. commercial banks from 1994 to 2019, we provide the first evidence on the decision-relevance of loan fair values for uninsured depositors. Our evidence suggests that loan fair value changes are quite relevant for depositor decision making, but the information in fair values about loan quality is limited and does not explain the relevance of fair values for depositors. The relevance manifests more strongly in banks where depositors’ incentives to withdraw money before other depositors (i.e., strategic complementarities) are stronger. The findings inform the cost-benefit trade-off of reporting loan fair values