Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154466
Authors: 
Enria, Andrea
Cappiello, Lorenzo
Dierick, Frank
Grittini, Sergio
Haralambous, Andrew
Maddaloni, Angela
Molitor, Philippe
Pires, Fatima
Poloni, Paolo
Year of Publication: 
2004
Series/Report no.: 
ECB Occasional Paper 13
Abstract: 
Accounting standard setters are considering the wider use of fair value accounting. This paper focuses on the financial stability implications of a move in the banking sector from the current accounting framework to full fair value accounting. A simulation exercise is performed on how various external shocks affect the balance sheet of an average European bank under the two frameworks. The paper further investigates the impact of the alternative framework on the main balance sheet items, and the interaction with banks’ risk management, supervisory tools and statistical requirements. It also examines how the application of fair value accounting to banks’ trading book has impacted their share price volatility. It is concluded that the introduction of full fair value accounting could have a significant effect in terms of income volatility, procyclicality of bank lending and more generally financial stability. Hence, any move towards this alternative accounting framework should be gradual.
Subjects: 
accounting
banks
fair value
financial regulation
financial reporting
financial stability
risk management.
JEL: 
G14
G21
G28
M41
Document Type: 
Research Report

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