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Do banks need special accounting standards?

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22 Jan 2010

In a speech to the Institute of Chartered Accountants in England and Wales, Adair Turner, Chairman of the UK Financial Services Authority discussed the question: Banks are different: should accounting reflect that fact?

Mr Turner set out the issue as follows:

Whether that should be the case is now subject to intense debate, with two very different points of view.
  • And there is a demand that bank accounting standards must reflect the concerns of prudential regulators. There is a belief that banks are different, and that accounting standards need to recognise this.
  • Among many securities analysts and investors, however, and among some accounting standards setters, there is a belief that accounts are for investors and not for regulators, that they must tell the 'truth' as it exists at one particular point in time, and that any influence of prudential regulators on bank accounting standards could be a Trojan horse for a wider politicisation.
This tension exists even within the regulatory community. Around the table of the international Financial Stability Board, the prudential regulators and central banks are the most convinced that banks are different and that the accounting standards setters must listen to us. The pure securities regulators, conversely, tend to be more sympathetic to the 'accounts are for investors' philosophy. And indeed the tension exists within the accounting standards-setting bodies, complicating any progress towards the convergence of international accounting standards. The International Accounting Standards Board (IASB), under David Tweedie's leadership, has been sympathetic to the idea that it must be involved in close dialogue with the prudential regulators. The Financial Accounting Standards Board (FASB) has been more wedded to the 'accounts are for investors only' philosophy, and to the philosophy that banks, in their accounting, should be treated no differently from anybody else.
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