- Progress and bill documents at Parliament’s website
- Latest press release
- The Law of Opposites – Illusory Profits in the Private Sector by Gordon Kerr of Cobden Partners
- Press release for The Law of Opposites
- Bank of England’s Haldane endorses concerns on bogus bank accounting
- Pressing the Chancellor on bank accounting
- How banks unjustly inflate profits, boost capital and pay unearned bonuses
- More articles
A Bill to expose banks’ false profits, overstated capital and hidden losses
On Tuesday 15 March 2011, Steve Baker MP introduced a Bill to require certain financial institutions to prepare parallel accounts on the basis of the lower of historic cost and mark to market for their exposure to derivatives; and for connected purposes. Steve explained how the accounting rules for banks incentivize trading in derivatives by enabling unrealized profits to be booked up-front, leading to large but unjustified bonuses and dividends.
More broadly, banks are producing accounts that grossly inflate their profits and capital in three ways:
- Using mark-to-market and mark-to-model accounting, banks record unrealized gains in investments as profits.
- IFRS prevents banks from making prudent provision for expected loan losses by allowing recognition only of incurred losses.
- IFRS encourages banks not to deduct staff compensation from profits.
Taken together, these flaws mean that banks’ accounts under IFRS are at once rule-compliant and dangerously misleading. The Bill deals with this broad problem. For much more detail, see Gordon Kerr’s Adam Smith Institute pamphlet, The Law of Opposites.