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.
Despite warnings about hasty rulemaking from accountants, the
Financial Stability Board (FSB), which coordinates regulation for
the Group of 20 (G20) leading economies, is encouraging the work to
plug gaps highlighted by the 2007-09 financial crisis and more
recent announcements from banks.
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.
The IVSC is incorporated in the United States with operational
headquarters in London, and is funded mainly through membership
subscriptions and sponsorship from the worlds of accounting,
regulation and academia.
It currently has 74 member bodies from 54 countries, but does not
have enforcement powers, and if any new rule is agreed, it would
raise the question who would carry out the valuations.
"A DIFFICULT TASK"
Tweedie previously chaired the International Accounting Standards
Board (IASB) which for the past decade has been aligning global
accounting rules at the G20's request to make it easier for
investors to compare companies.
Six years after the financial crisis started, the IASB has yet to
fulfill a G20 demand to force banks to make provisions for loans
much earlier, a sign of the challenge the IVSC faces.
[to top of second column]
When markets froze during the financial crisis, it was hard to price
assets like derivatives and since then there have also been
unexpected changes in asset values.
Shares in Deutsche Bank fell up to 5 percent on Monday after the
German lender surprised markets, partly due to a 623 million euro
($845 million) charge for various valuation adjustments.
The European Central Bank is now sifting through assets of top euro
zone lenders, including Deutsche Bank, to make sure values reflect
reality before it supervises them from November.
Last August, Britain's Co-op Bank unveiled an impairment on loans of
496 million pounds after a fresh review. It followed a 351 million
pound impairment in 2012.
"Could the market have seen that coming if they had done it
differently?" Tweedie asked of the Co-op's case.
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.
Other people familiar with the IVSC's work said it was crucial to
come up with principles that are not set in stone otherwise
valuations cannot be improved on.
($1 = 0.7376 euros)
(Editing by Mark Potter)
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