Fair value triggers panic among Wall Street banks
New accounting standard will force banks to 'come clean' on sub-prime mortgages
Fair value accounting is set to trigger a series of write-downs of up to
£190bn on Wall Street this week.
US accounting standard FAS 157 is set to prohibit banks such as Citigroup,
Goldman Sachs, Morgan Stanley and others from setting values to sub-prime
mortgages and other forms of debt on the basis of ‘assumptions’, the Daily
Telegraph reported.
Assets must instead be valued at market prices.
Barclays share price dropped 9% at one
point in the run-up to Friday’s trading, causing trading to be suspended. The
bank denied reports that it was preparing to write $10bn in sub-prime
investments.
Royal Bank of Scotland credit chief Bob Janjuah said the standard could lead
to a further $100bn for write-downs as banks are forced to come clean, with
total losses climbing as high as $500bn across all forms of distressed credit.
Further reading:
Understanding fair value could take 30
years
Why
FAS 157 strikes dread into bankers