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The Government should now adopt my bill on bank accounting


Accounting seems so dreary but what if broken rules allow banks to show false profits, overstate capital and hide losses? What if the banks have paid bonuses out of unrealised gains? The Bill I introduced in March 2011 deals with just those problems. All the details are here. I learnt today that the Bank of England will make a statement on Thursday about bank balance sheets. I expect they will require assets to be written down and more capital to […]

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Bank’s risk management affected by IFRS accounting


Since I introduced a measure criticising IFRS accounting and requiring banks to prepare accounts to UK standards, there have been a stream of developments backing up my criticisms. The problem extends as far as Korea. Via bruegel.org: Korean firms’ business activities, such as risk management and foreign investment, have been affected by the obligation since 2011 to adopt International Financial Reporting Standards (IFRS). Korean banks may need to reshape their credit-rating models and enhance their loan-collection systems to prepare for […]

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Two simple steps to transform the culture of banking and to forestall the next outrage


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It’s time to privatise commercial risk in banking and insist on prudent accounts. Government should: Eliminate moral hazard from the financial system by implementing this measure to make bank directors strictly liable without limit and to treat as capital both directors’ personal bonds and, for five years, the bonus pool. Introduce prudent bank accounting so banks can’t game the rules using derivatives to manufacture illusory profits from unrealised cash flows. The banking system isn’t capitalist It’s not capitalism when private individuals […]

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Banks: gaming the rules to generate illusory profits


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As I prepared an article on how banks generate illusory profits and artificial levels of capital by gaming the rules, I rediscovered this limerick in Gordon Kerr’s related paper, The Law of Opposites: There was a young man from Darjeeling Who got on a bus marked “To Ealing” The sign on the door Said “Don’t spit on the Floor” So he lay back and spat on the ceiling Here’s a great metaphor from the book, which explains how the rules […]

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Government faces fresh questions over accounting rules | The Guardian


Further to my work on accounting: The government is facing fresh questions about whether current accounting rules are suitable for banks, amid claims that they permit the overstatement of profits and fail to provide a proper picture of losses. The issue is being raised by Lord MacGregor, chairman of the House of Lords economic affairs committee, in a letter to Norman Lamb, the newly appointed employment minister, who also has responsibility for auditing. Read more via Government faces fresh questions […]

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IFRS accounting appears to allow Barclays to double stated profit


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It has been brought to my attention by PIRC that Barclays are leaving £2 billion of bonuses out of their accounts within IFRS rules. Taken together with another flaw in IFRS, it appears that Barclay’s true profit is about half that allowed under the rules. Via the PIRC site: Barclays is still leaving bonuses of more than £2.0bn out of its accounts, nearly three times the dividend for 2011 (£730m), according to analysis by PIRC. PIRC research last year identified that at […]

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Three flaws in the Financial Services Bill


Under the heading, Osborne looks to limit damage of ‘credit busts’, the FT gives a neat summary of the Chancellor’s plans. In particular: He said the FPC would also look out for dangerous linkages in the financial system and identify exotic new instruments that might undermine stability. It would be charged with containing credit booms as well as limiting the damage of “credit busts”. Which this morning caused me to regret that I was not given time in the Commons […]

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Lord Lawson condems the present accounting regime for banks


In the Irish Times: ON JANUARY 1st 2005 the European Union imposed accounting rules on Irish banks containing a significant but simple flaw that had an impact on the fatal decision by the Irish government in 2008 to give Irish banks a blanket guarantee. via Bad loans were legally hidden as Lenihan made pledge. And writing in the FT, Lord Lawson says: The auditing of banks’ accounts, however, is fundamentally flawed in itself. The IFRS accounting system itself has proved […]

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Bank of England’s Haldane endorses concerns on bogus bank accounting


The Bank of England’s Executive Director Financial Stability, Andy Haldane, has set out the case for banks to be held to different accounting standards because the existing rules have may allowed banks to overstate their profits and exacerbate their losses. This is something I covered in a private members’ bill last year, with particular reference to derivatives. As reported in the Guardian: Accounting rules for banks have bent with the financial stability wind in ways which have amplified investor and […]

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Pressing the Chancellor on bank accounting


Via Hansard: Steve Baker (Wycombe) (Con): Chapter 3 of the Government’s report, on loss absorbency, seems, perhaps reasonably, to take for granted the adequacy of accounting standards. I press the Chancellor in his forthcoming White Paper to consider seriously the pernicious effects of the international financial reporting standards, which were applied to banks by the previous Government. Mr Osborne: There is a debate to be had about international accounting rules and their impact on the financial crisis, which I am happy […]

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