CRMPG-III report on containing systemic risk
13 Aug 2008
The Counterparty Risk Management Policy Group III (a group of senior officials from a number of major financial institutions) has published a report titled Containing Systemic Risk: The Road to Reform.
- Reconsideration of the standards for consolidation under US GAAP of entities currently off-balance sheet coming on-balance sheet.
- Measures to better understand and manage high-risk financial instruments.
- Significant enhancements to risk monitoring and management.
- A series of sweeping measures to enhance the resiliency of financial markets generally and the credit markets in particular, with a special emphasis on OTC derivatives and credit default swaps.
An excerpt from the accounting recommendations: II-1. The Policy Group endorses, in principle, the direction of the changes to the US GAAP consolidation rules provided that the changes are (1) principles-based, (2) convergent with International Financial Reporting Standards, and (3) accompanied by suitable disclosure and transition rules regarding regulatory capital which will provide flexibility in the implementation of these rules over a reasonable period of time. II-2. The Policy Group recommends adoption of a single, principles-based global consolidation framework that is based on control and the ability to benefit from that control. The analysis of whether an entity (the investor) has a controlling interest in another entity (the investee) should be based on:
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