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Bibframe Work

Title
Fair value accounting, historical cost accounting, and systemic risk
Type
Text
Monograph
Contribution
Greenberg, Michael D., 1969- ([author])
Helland, Eric (Author)
Clancy, Noreen (Author)
Dertouzos, James N., 1950- (Author)
RAND Center for Corporate Ethics and Governance (Sponsor)
Subject
Fair value--Accounting (LCSH)
Language
English
Illustrative Content
Illustrations
Classification
LCC: HF5681.V3 G74 2013 (Assigner: dlc) (Status: used by assigner)
Supplementary Content
bibliography
Content
text
Summary
Fair value accounting (FVA) refers to the practice of updating the valuation of assets or securities on a regular basis, ideally by reference to current prices for similar assets or securities established in the context of a liquid market; historical cost accounting (HCA) instead records the value of an asset as the price at which it was originally purchased. In the wake of the 2008 financial crisis, conflicting arguments have been made about the contributions of valuation approaches in triggering the crisis. This report investigates and clarifies the relationship between these two accounting approaches and risks to the financial system. The authors examine the risk implications of FVA and HCA in the various situations in which each is used; assess the role that these accounting approaches have played historically in financial crises, including the 2008 financial crisis, the savings and loan crisis of the 1980s, and the less developed country debt crisis of the 1970s; and explore insights about systemic risk that can be gleaned from better understanding the accounting approaches. The authors find that FVA was probably not a primary driver of the 2008 crisis. Moreover, they suggest that neither FVA nor HCA is objectively ⁰[MARC+62][MARC+65][MARC+74][MARC+74][MARC+65][MARC+72]⁰₊ than the other. Instead, both accounting approaches can provide useful information for different contexts when applied rigorously, but when they are implemented poorly or when regulatory oversight is weak, both FVA and HCA can produce misleading information that can increase systemic risk across the financial sector. The authors conclude with a series of recommendations for how FVA and HCA, and the financial information that both methods generate, can be improved to better protect against systemic risk to the banking sector in the future.
Table Of Contents
Introduction
Background: The Debate over FVA and HCA
Systemic Risk and Accounting Approaches
Accounting Standards and Prudential Regulation
Lessons from Historical Episodes Involving Accounting Standards, Systemic Risk, and Financial Crisis
Implementation and Risk: The Challenges to Doing FVA and HCA Well
Conclusion and Policy Options
Appendix: An Overview of HCA and FVA.
Authorized Access Point
Greenberg, Michael D., 1969- Fair value accounting, historical cost accounting, and systemic risk
Admin Metadata
Generation Process: DLC marc2bibframe2 v2.5.0
Status: changed
Encoding Level: full
Identified By: bf:Local, 17888447
Change Date: 2018-07-23T15:49:46
Creation Date: 2013-09-17
Description Language: English
Description Modifier: United States, Library of Congress
Description Authentication: Program for Cooperative Cataloging
Assigner: YDXCP