Title: An Analysis of Fair Value Accounting in the Banking Industry
Abstract: Since the recent financial crisis, fair value accounting (FVA), specifically Statement of Financial Accounting Standard No. 157 (SFAS No. 157), has had many critics. Some claim that fair value accounting caused or at least contributed to the crisis. Others reject fair value accounting on a conceptual level in favor of historical cost. Of these criticisms, three have been levied most by fair value accounting critics. The first is the claim that increased volatility is caused by the pro-cyclicality of fair value accounting. The next is the claim that fair value accounting has an overly negative impact on a bank’s regulatory capital. Finally, critics claim that there is no framework for valuing assets in illiquid markets when the assets are still performing. When analyzed, these criticisms don’t justify the suspension or revocation of fair value accounting in US generally accepted accounting principles (GAAP). Evidence will show that fair value accounting did not cause the financial crisis. In fact, fair value accounting can potentially lessen the severity of financial crises.
Publication Year: 2011
Publication Date: 2011-01-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 2
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