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European responses to financial markets turmoil

  • European Union (old) Image

02 Apr 2008

In his report yesterday to the European Parliament's Committee on Economic and Monetary Affairs, Charlie McCreevy, the European Commissioner for Internal Market and Services, discussed the Latest Developments on Policy Response to Financial Turmoil.

He addressed a range of issues, including supervisory convergence across Europe, changes to the bank Capital Requirements Directive, and some accounting-related issues. Here are excerpts:

The issues [causing the turmoil] are known: weak internal valuation models, opaque securitization process, business models that were built upon disproportionate maturity mismatches between assets and liabilities, weak internal controls and poor disclosure standards, to name but a few.

Improving valuation standards, in particular for illiquid assets. This work is done at international level. It has recently intensified. We are happy to hear that the International Accounting Standards Board (IASB) will present a discussion paper including considerations on fair value measurement this month. In May, a task force of the International Organisation of Securities Commissions (IOSCO) will also present its findings. This is good news. We will continue to closely monitor progress. There is a growing debate on whether fair value and mark to market measurements may have aggravated the crisis by bringing pro-cyclicality in financial statements. I want to make it clear that I believe that there are some real accounting issues and anomalies to examine, including the interface with the Capital Requirements Directive, such as the consolidation of special purpose entities or the measurement and information disclosed on risk exposures. Clearly, these and other issues – such as the impact of mark to market valuation when markets generally become illiquid and irrational – must be thoroughly analysed.

Click to view Latest Developments on Policy Response to Financial Turmoil (PDF 82k).

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