The initiative may face resistance from a banking sector worried that assets will be more conservatively priced, hitting bonuses and bumping up capital requirements. "Regulators don't have a benchmark for valuations at banks", said David Tweedie, chairman of the International Valuation Standards Council (IVSC), an independent, not-for-profit, private sector body which develops valuation standards. "Our job is to say that is how you arrive at the value. Let's agree a model. The big ones we should have done within two to three years", he told Reuters in an interview. Tweedie will start setting up this week a task force of regulators, standard-setters, rating agencies and accountants to look at big variations in values and the pricing methods used.
Accounting rules set out when an asset is priced at the going rate, known as mark-to-market, but give little guidance on exactly how that information should be applied in a company's accounts - especially if there is no market. "The key one will be derivatives and how to deal with them when there is not a market. We could get resistance as this could affect bonuses and capital buffers", Tweedie said.
Iain Coke, head of faculty at the ICAEW, an accounting body, said a new rule would be a complex undertaking as how an asset is valued often depends on the valuer's point of view. "If you are a regulator worried about whether the bank has enough capital then you may well have a particular bias to prudence, while for financial reporting it's aimed at being more neutral, neither over or understating values", Coke said.
"You can have a range of values even under a single accounting standard, which suggests it's going to be a difficult task. It's an ambitious agenda and we hope they are not going to be pushing too fast", Coke said.
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