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Should banks have a separate accounting regime?

Contractor accountants [1] may be interested to learn that Andrew Haldane has called for a separate accounting regime for UK banks.

Haldane is the executive director for financial stability at the Bank of England. He recently told the ICAEW that the current bank accounting rules [2] do not take enough consideration of the ambiguities associated with assets and liabilities.

A fair accounting system would recognise that balance sheets for banks differ from other organisations due to the uncertainties surrounding the valuation of assets and the mismatched maturity of liabilities.

Banks have a more complex asset portfolio and the risks surrounding the valuation of those assets are completely different than they are for non-financial entities. And it is these differences that support a separate regulatory and resolution regime for banks, he added.

The head of the financial services faculty at the ICAEW [3], Ian Coke, agreed that changes were needed but warned that providing banks with their own accounting regime would prompt other sectors to demand their own regime as well. Furthermore, it could look as if the banks are attempting to become less transparent at a time when they are already coming under increasing criticism.

He went on to say that Haldane’s proposals for disclosing a range of valuations are complex and could be hard to understand.

In January 2010, Lord Turner called for banks to have a separate accounting regime and the issue has been discussed several times before that. Almost every industry can highlight complexities that are unique to their own particular sector, so would it really be fair to change the rules just for the banks [4]?

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Image: American Honey [5] by Rachel Rae!

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