#IASB & #FASB #accounting proposals on Level 3 fair value standards just issued
The IASB and FASB have just announced a joint proposal to address fair value standards. If the G20 Toronto summit was disappointing for those seeking traction on convergence generally and on fair value in particular, then here is the initiative to provide hope that this particular G20 agenda item is not quite dead.
Level three assets are those assets for which no ready trading market exists and for which valuation is most challenging. In their own words from the exposure draft: ‘The IASB and the FASB have tentatively decided to require entities to disclose a measurement uncertainty analysis for fair value measurements categorised within Level 3 of the fair value hierarchy unless another IFRS specifies that such a disclosure is not required for a particular asset or liability.”
Sharpen your pencils, and spend the summer considering the implications associated with this initiative from a risk management, IT systems, legal liability, and regulatory perspective. Remember that Level 3 assets are where banks current hold toxic debts from subprime to certain European sovereign bonds.
But don’t think about it too long….comments are due on 7 September 2010. For us G20 analysts, this is good news…it theoretically provides sufficient time for the accounting standard setters to provide a view on general direction at the November summit in the Republic of Korea.
#FT story on #G20 #financial #reform issues
Today’s FT (page 2 of the US edition) provides a long look at the G20 outcomes associated with banking regulation. The bottom line is that the G20 is sticking to its original plan of making decisions on the regulatory capital framework and calibration at year-end. The signals all indicate that the official sector seeks not to make major changes in the Basel 3 proposals. The Risk Telescope subscribers receive analysis explaining which economic policy trends are affecting these and other regulatory policy decisions.
G20 outcomes analyzed
The Toronto summit was always expected to serve as a way-station to check progress on the road to Seoul in November. The summit text delivered solidly on those expectations. The main deliverables can be summarized as follows:
- Papering over differences regarding fiscal policy;
- Creating a Working Group on Development;
- Handing off the climate change workstream to the United Nations; and
- Assuming authority for international economic policy matters from the G8 (leaving the G8 focused on foreign policy for the most part).
Also as expected, the main decisions regarding financial taxation, regulatory capital, IMF reform, cross-border resolution and other issues remain on target for decisions in Seoul at the end of the year.
This issue of The Risk Telescope analyzes the G20 Communiqué (including its various Appendices), together with the two reports issued by the Financial Stability Board and the two reports issued by the International Monetary Fund. The inescapable conclusion is that while deep differences of opinion remain with respect to short-term international economic policy, substantial agreement exists on a broad range of regulatory policy matters.
One particular issue area merits additional attention in light of the IMF’s strong recommendations concerning financial taxes. Therefore, Appendix A to this report provides a spectrum analysis of different tax proposals and their policy utility in order to facilitate discussion and analysis of these issues.
Receive the rest of this post by Subscribing to the Risk Telescope IMF reports to G20
After great delay and not an insignificant amount of controversy, the IMF finally received authorization to release its two reports to the G20. You can read them here:
This concludes all expected releases of relevant background documents associated with the Toronto summit text.
Financial Stability Board Reports to G20
You can read here the reports issued by the Financial Stability Board to the G20 and released a few minutes ago. They include:
- The progress report on existing initiatives;
- An interim report on systemically important financial institutions; and
- A cover note from FSB Chairman Draghi.
G20 Toronto Communique
Read the full text of the G20 Toronto Communique here. The Risk Telescope will be published later tonight, following release and analysis of the FSB report.
Accounting convergence — IASB update for G20
On 24 June 2010, the IASB provided and update to the G20 regarding the status of various convergence projects. The accountants’ current best estimate of when this project might come to conclusion is the second quarter of 2o11….after the previously stated G20 target date. This delay is no surprise. The FSB update in April indicated in stark language that the project was running into difficulty, as did the IASB’s update for the Busan meeting earlier this month. Close followers of this issue will note that on valuation issues in particular, near-term trends suggest FASB and the IASB are actually diverging rather than converging on underlying standards.
The Risk Telescope is following closely and in some detail the various trends that will affect the ability of the accounting standards setters to meet their long-stated convergence targets…not to mention the G20 priorities. The economic, EU political, banking regulation, and accounting priorities are not in line and will continue to generate challenges for the foreseeable future. We will not be surprised if the 2Q11 target date also slips.
Fools Gold & The Great Crash 1929 reviewed together
This past Christmas, someone gave me Fools Gold to read. It occurred to me that I should review now as the sequel to The Vandals Crown. Gillian Tett’s excellent narrative of the rise and fall of the CDS swaps market naturally picks up the story of risk management and financial innovation. Writing book reviews takes a back seat to paying business, of course…so the review was delayed. Along the way, I read The Great Crash 1929 by John Kenneth Galbraith. Its narrative held so many parallels to the topics covered in Fools Gold that this review addresses both books.
Why would anyone care to read about ancient history…much less publish book reviews about it on the day that the U.S. Congress finalizes U.S. financial reform legislation and the G20 prepares to meet in Toronto? Because these books discuss and analyze recurring patterns in financial market behavior that merit attention today. When mariners navigate the oceans by looking at the stars, technically they are looking backwards in time at light emitted many many years ago. So it is with financial risk management and regulatory policy. Recurring patterns and commonalities over the years should enable us to learn from our mistakes. At least that is the hope.
This review encompasses a paragraph or two on each book. It closes with some reflections of common themes and observations that may be relevant to today’s risk managers seeking to craft stronger scenario analysis capabilities as well as senior executives seeking to craft strategic directions for their asset and liability management policies as financial regulation reform barrels forward. Read More >>
Buy this and other related booksCanada G20 priorities
Watch the Canadian Prime Minister’s opening statement to the G20 sherpas this morning here: http://g20.gc.ca/statement-by-the-prime-minister-of-canada-2/
With all the media frenzy over stimulus, eurozone austerity and US financial reform, this statement provides insight into the broader discussion.
G20 preview
The last issue of The Risk Telescope (on 6 June 2010) concluded as follows: “The stage is set for stalemate through mid-summer.” Despite the flurry of news surrounding China’s adjustments to its exchange rate regime last weekend, the expected stalemate has indeed materialized on the full range of economic and policy issues on the G20 agenda.
Regular readers will recall that most of the major policy issues under discussion within the G20 umbrella that generate most media attention (financial sector taxes; regulatory capital; regulation of “all” financial markets, instruments and firms; IMF reform) have long been slated for discussion and decision in November, not June of 2010. In other words, the midsummer G20 meeting has always been a placeholder meeting during which members can evaluate economic trends in order to make decisions in the autumn.
The sound of silence from the G20 this month regarding accounting convergence, IMF reform, regulatory capital, derivatives regulation, bank resolution, and tax policy seems deafening…particularly in relation to the loud and raucous debate occurring publicly with respect to cross-border economic policy coordination. Rather than be distracted by the rhetoric, readers are encouraged to listen to the G20 debate in the same way that one would listen to Count Basie’s music: the silence forms an integral part of the composition, and suggests the direction that may emerge later.
This note previews the structural shifts signaled by the trade and development focus associated with the June meeting. It then suggests how to view the silence on key regulatory policy initiatives in light of legislative efforts in Brussels and Washington. An analysis of outcomes will follow over the weekend.
