Procyclicality and Fair Value Accounting

Juan Sole, Alicia Novoa and Jodi Scarlata

No 09/39, IMF Working Papers from International Monetary Fund

Abstract: In light of the uncertainties about valuation highlighted by the 2007-2008 market turbulence, this paper provides an empirical examination of the potential procyclicality that fair value accounting (FVA) could introduce in bank balance sheets. The paper finds that, while weaknesses in the FVA methodology may introduce unintended procyclicality, it is still the preferred framework for financial institutions. It concludes that capital buffers, forward-looking provisioning, and more refined disclosures can mitigate the procyclicality of FVA. Going forward, the valuation approaches for accounting, prudential measures, and risk management need to be reconciled and will require adjustments on the part of all parties.

Keywords: Financial institutions; Bank accounting; Business cycles; Capital markets; Monetary policy; Bank supervision; Economic models (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc and nep-rmg
Date: 2009-03-16
View list of references

Downloads: (external link)
http://www.imf.org/external/pubs/ft/wp/2009/wp0939.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:imf:imfwpa:09/39

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund
Address: International Monetary Fund, Washington, DC USA
Contact information at EDIRC.
Series data maintained by Christopher F. Baum ().