IMF calls for fair value review

The International Monetary Fund has suggested that fair value accounting rules be reviewed, on the back of a report which highlights how the practice exacerbated the asset prices.

The global fund is the latest senior organisation calling for a change in the rules, as investment banks, accounting advisory bodies and senior executives criticised the standard in recent weeks.

The IMF predicts that the credit crunch could result in losses of as much as $1trillion (£50bn).

In its latest Global Financial Stability Report from the IMF, states notes that the experience of the last few months, during which the markets plunged with several lenders writing off billions, the application of the fair value accounting framework caused prices to fall further in the face of thresholds that required sales of assets when fair-values fall below the threshold.

'We have been a little bit humbled by the analysis of the crisis because it has been a very, very complex crisis,' IMF director of the monetary and capital markets department, Jaime Caruana said.

The report also showed that lenders failed to address risks associated with the structured investment vehicles and commercial paper conduits, held off their balance sheet. This was in turn 'in-transparent to investors and regulators', the report said.

'First, the balance sheets of financial institutions are weakening; second, the de-leveraging process continues and also that asset prices continue to fall; and, finally, the macroeconomic environment is more challenging because of the weakening global growth,' Caruana added.

Further reading:

IMF blames $1trn credit crisis on lax financial rigour

Read the IMF report here

Credit crunch sparks fair value revolt