An upgraded version of fair value accounting to counter the effect of market crises on bank assets is still pro-cyclical, a risk expert said today.

Responding to suggestions by French accounting experts Jean-François Lepetit, Etienne Boris and Didier Marteau for an 'intrinsic' measurement of assets that have been discounted in crises, Avinash Persaud warned that creating a different measurement during bad times would encourage excess in the good times.

'Offering accounting forbearance to banks when asset prices plummet, but not in the boom when roaring prices contribute to excessive lending, will strengthen the incentives for excess that lead to crises in the first place,' said the emeritus professor, Gresham College and trustee, Global Association of Risk Professionals.

Persuad said in the FT's letters page that adjustments to mark-to-market accounting could only be made if they could be downgraded in good times.

'To avoid succumbing to political pressure, the accounting regulator would need to determine when to adjust mark-to-market accounting.'

Further reading:

French experts explain fair value during a crisis