RegulationAccounting StandardsTories call for UK fair value suspension

Tories call for UK fair value suspension

Conservatives jump on fair value bandwagon after US congress leads the way earlier this week

The Conservative Party has echoed US moves to scrap mark-to-market accounting
in a shock move this afternoon.

Fair value accounting would be dropped for three months under the radical
plans.

David Cameron’s party said that it would push the government to suspend the
‘mark-to-market pricing within banks that causes a vicious cycle of write-downs
and falls in asset values.’

Under the propsals, banks should price their assets at the value they expect
to get out of them over the long term, which would help abate the downward
spiral.

‘In normal times [mark to market] is sensible as it forces banks to value
their assets against an objective price. But when the market is clearly not
functioning properly, it can create a vicious circle as falls in valuations
trigger falls in valuations of other assets too. Asset prices can fail to
reflect the long-term reality.’

The value banks attribute to their own assets would also have to be audited,
the Conservative added.

‘Banks must continue to reflect the value of their assets. Suspending marking
to market will help us get through the crisis.’

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