UK banks need radical bespoke accounting rules

Andrew Haldane, top official at the Bank of England, sais that UK banks need radical bespoke accounting rules to clear the cunfusion over valuing assets held on their books. There is need to recognize differences between banks and other types of companies as the accounting rules used by banks amplify investor and regulatory uncertainty. "It is, after all, precisely these differences that justify separate regulatory and resolution regimes for banks. A distinct accounting regime for banks would be a radical departure from the past. But if we are to restore investor faith in banking sector balance sheets, nothing less than a radical rethink may be required," Haldane said. As the financial crisis began unfolding in 2007, policymakers called for an easing of the "fair value" rule so that banks don't have to price all their assets immediately at values that were falling fast, making them unstable and in need of bailouts by taxpayers. The International Accounting Standards Board (IASB), responsible for accounting rules used in Britain and the rest of the European Union, agreed to ease its fair value rule in 2009 but the EU has yet to endorse the changes. "A reasonable starting point would be to recognize the clear differences between bank and non-bank balance sheets, in particular valuation uncertainty associated with assets and maturity mismatch associated with liabilities," he added.