Regulators must examine mark to market accounting as part of a fundamental
debate on the setting of banks’ capital requirements, the chairman of the
Financial Services Authority has said.
Lord Turner told the Financial Times that the debate was required and that
alongside issues such as bonus structures, the transfer of risk and the
regulation of liquidity and capital, mark to market accounting must be
However, the interview did not elaborate on how a debate on mark to market,
or fair value, accounting would be managed. Neither did it hint at whether
recent steps taken by the International Accounting Standards Board, and endorsed
by the European Commission’s Council of Ministers, to allow the reclassification
of some financial instruments so they are not subject to a fair value
calculation were adequate.
If the FSA does undertake a review of mark to market it is likely to come at
the issue from the point of view of capital adequacy requirements for banks,
quiet a different set of interests from those behind the work of the IASB in
setting accounting standards.
The SEC announced yesterday that it was to stage round table discussions this
month to explore the effects of mark to market accounting, whether it changes
the behaviour of users and whether it remains useful to investors and
There has been immense pressure in the US, UK and Europe to suspend mark to
market amid claims that it has exacerbated the current financial crisis and
unfairly undermined the balance sheets of financial institutions.
Investors and regulators have mostly stood by the rule.
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