FSA holds crisis meetings on ‘fair value’

The Financial Services Authority has held ‘round table’ meetings with banks and leading auditors to discuss fair value accounting as part of its analysis of valuation techniques in the current market turmoil.

The FSA has not changed its rules, but officials have warned banks to take extra care on their regulatory valuations, the Financial Times reports.

Regulators will require banks to adjust their accounting to more closely reflect actual liquidity, which in today’s markets could involve booking assets at potentially sharp discounts to the current price, if that value is unlikely to be realised on the sale of the asset.

‘The FSA made the point that they are concerned about prudential valuation,’ one person present at the meetings told FT. ‘They recognise that in normal markets both values might be the same but when liquidity dries up, they might well diverge.’
Further reading:

Fair value shockwaves far from over

Financial regulation at the heart of the sub-prime storm

Read story in the Financial Times