EU group backs change to bank accounting rules

The implications of this are serious, under the new Accounting system already agreed as of last week banks do not have to “revalue” Assets showing their true value.

An EU regulators’ committee in Brussels voted unanimously in favour of accepting the emergency changes made by the International Accounting Standards Board on Monday.

These changes will give banks more leeway in how they value certain assets whose prices have plunged.

Lawmakers in the European parliament then quickly endorsed the vote, while member states also gave their unanimous support.

This means the changes, which are optional, can now apply to calculations of banks’ third-quarter results if they wish.

Under the rule change, financial institutions would be able to “reclassify” certain instruments. This means they can move them from their trading books, where they must be marked at “fair”, or current, market values, to their banking books.

Here, they can be reported at amortised cost - so any further falls in market prices would not have to be reported, and any gains would be spread over the lifetime of the assets.

The IASB changes followed heavy pressure from European banks and politicians.

European companies had complained that US rules gave their American rivals greater flexibility.

The issue was picked up by EU finance ministers last week, who urged international accounting standard boards to work together and “welcomed the readiness” of Brussels to take appropriate action “as soon as possible”.

They demanded that the reclassification issue be solved by the end of the month.

However, there were fears discrepancies could arise between the approach taken by the London-based IASB and EU rulemakers, but that worry appeared to recede yesterday.

The financial community, however, remains divided about the wisdom of easing up on fair value accounting.

Those in favour include some banks and insurers who believe their balance sheets are being weakened unnecessarily.

Those against include many regulators, auditors and some investors, who think that using market prices reflects current economic reality, however harsh that may be.

-( Financial Times service)

© 2008 The Irish Times

Oh noes, teh game isn’t working in my benefit anymore.

Well change the rules then :nin

LOL. Great way to re-instil confidence and trust by making the books even less transparent. This is a tragi-comedy. :laughing: :cry:

Heard something about this on the radio this morning but promptly forgot about it because some git cut me off on the motorway. The comment was to the effect that companies would not be required to apply mark to market values to their assets in this accounting quarter. A month ago I wouldn’t have known what “mark to market” meant, thanks pinsters.

Already predicted here on the pin.

Rearranging deckchairs.

Thought this article from WSJ a couple of weeks ago was a good overview. I can see both sides of this argument, but I can’t see how suspending MTM will increase investor confidence. … refer=home

Rubin fresh from resigning in failure if not disgrace

“Mark-to-market accounting has done a great deal of damage,” Rubin said. “For a lot of financial institutions we should move to something that is more similar to reserve accounting. That will be a very controversial matter.”

Under reserve accounting, assets like loans are carried at cost, offset by reserves for potential losses. Rubin was criticized by investors for collecting more than $150 million in pay in a decade while failing to steer Citigroup away from subprime mortgages.

Goldman Sachs Group Inc., where Rubin was co-chairman in the early 1990s and where he spent 26 years, is an advocate of fair- value accounting. Rubin left Goldman Sachs to become a top economic adviser to President Bill Clinton in 1993. In 1994, he succeeded Lloyd Bentsen as Treasury secretary, presiding over five years of economic growth.

“For us, fair value is the oxygen of the firm,” Matthew Schroeder, managing director for accounting policy at Goldman Sachs, said at a U.S. Securities and Exchange Commission public meeting in July. “It’s part of our fabric. We follow a daily discipline of marking to market at our firm. It can be done.”

SO the problem is mark to market, not the bundling of dubious assets, all wrapped up in a nice AAA rating. Go figure :angry:

Yeah we can change the accounting rules to what ever you want guvnor. Just don’t come knocking on the door when credibility has flown out the window.