This story appeared in Jim Hamilton's World of Securities Regulation.
Fair value mark-to-market accounting and accounting for loan losses as applied to banks can increase pro-cyclicality and pose a systemic risk, said UK Financial Services Authority Chair Adair Turner, and thus is linked to macro-prudential risk regulation. In remarks at a London conference hosted by the Institute of Chartered Accountants of England and Wales, he noted that no other sector of the economy is remotely comparable to banking in its capacity to be a driver of economic volatility. As a result, accounting standards relevant to banks need to reflect these differences.
On a broader level, the FSA Chair acknowledged the rising tension over fair value accounting between banking and securities regulators, which has spilled over into the accounting standard setters. The banking regulators are convinced that banks are different and that the IASB and FASB must consider this difference. The pure securities regulators, conversely, tend to be more sympathetic to the idea that accounts are for investors and must reflect fair value at all times.