The macroeconomic impact of IAS

Gwénaëlle Flandrin-Le Maire

Revue d'Économie Financière, 2003, vol. 71, issue 2, 107-120

Abstract: [eng] This paper deals with the main advantages and disadvantages of using the fair value method to value assets and liabilities and the potential macroeconomic impact of the application of the IAS standards to financial institutions. Although valuation at historical cost does not of course provide all of the information necessary to assess risk exposure, there are some major drawbacks to the comprehensive application of fair value accounting. This change in accounting procedures will affect the measurement of bank earnings and capital and will also impact prudential ratios. On the macroeconomic level, indiscriminate application of the fair value principle risks increasing the volatility of earnings and capital in the banking industry. This would decrease financial security, which would be contrary to the objective of accounting standard setters. Its application could amplify credit cycles and could also transfer interest-rate risk to non-financial economic agents and possibly even reduce the total volume of lending. . JEL classifications : G14, G21, M41

Date: 2003
Note: DOI:10.3406/ecofi.2003.4750
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