Harmonising Basel III and the Dodd Frank Act through international accounting standards: reasons why international accounting standards should serve as “thermostats”

Ojo, Marianne (2012): Harmonising Basel III and the Dodd Frank Act through international accounting standards: reasons why international accounting standards should serve as “thermostats”. Unpublished.

Abstract

Why should differences between regulatory and accounting policies be mitigated? Because mitigating such differences could facilitate convergence – as well as financial stability.

The paper “Fair Value Accounting and Procyclicality: Mitigating Regulatory and Accounting Policy Differences through Regulatory Structure Reforms and Enforced Self Regulation” illustrates how the implementation of accounting standards and policies, in certain instances, have contrasted with Basel Committee initiatives aimed at mitigating procyclicality and facilitating forward looking provisioning. The paper also highlights how and why differences between regulatory and accounting policies could (and should) be mitigated.

This paper focuses on how recent regulatory reforms – with particular reference to the Dodd Frank Act, impact fair value measurements. Other potential implications for accounting measurements and valuation, will also be considered. Given the tendencies for discrepancies to arise between regulatory and accounting policies, and owing to discrepancies between Basel III and the Dodd Frank Act, would a more imposing and commanding role for international standards not serve as a powerful weapon in harmonizing Basel III and Dodd Frank – whilst mitigating regulatory and accounting policy differences?

• Item Type: MPRA Paper
• Language: English
• Keywords: financial stability; OTC derivatives markets; counterparty risks; disclosure; information asymmetry; transparency; living wills; Volcker Rule; Basel III; Basel II; pro cyclicality; international auditing standards; Dodd Frank Act; fair values
• Subjects: E - Macroeconomics and Monetary Economics > E0 - General > E02 - Institutions and the Macroeconomy; D - Microeconomics > D0 - General; K - Law and Economics > K2 - Regulation and Business Law; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty; G - Financial Economics > G0 - General > G01 - Financial Crises; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles

References

Ball R, „International Financial Reporting Standards (IFRS): Pros and Cons for Investors“ <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=929561>

Bank for International Settlements, “Central Bank Governance and Financial Stability” A Report by a Study Group May 2011 <http:www.bis.org/publ/othp14.pdf>

BRIEF, „Deutsche Bank CFO Says Concerned New Basel Rules Allow Shadow Banking System Whilst Constraining Bank Sector“ < http://www.finanznachrichten.de/nachrichten-2011-05/20264700-briefdeutsche- bank-cfo-says-concerned-new-basel-rules-allow-shadow-banking-system-020.htm

Dodd-Frank Wall Street Reform and Consumer Protection Act http://www.sec.gov/about/laws/wallstreetreform-cpa.pdf

Financial Stability Board, “Implementing OTC Derivatives Market Reforms” Oct 2010 http://www.financialstabilityboard.org/publications/r_101025.pdf

Grande M, Accounting and Procyclicality, Conference on Financial Reporting in a Changing World

Khan U, „Does Fair Value Accounting Contribute to Systemic Risks in the Banking Industry?“ http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1327596

KPMG, “The Dodd Frank: Could There Be Accounting Consequences?” http://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/Documents/dodd-frank-accounting-consequences.pdf

Lall R, “Why Basel II Failed and Why Any Basel III is doomed” Global Economic Governance Programme GEG Working Paper 2009/52 October 2009 < http://www.globaleconomicgovernance.org/wp-content/uploads/GEG-Working-paper-Ranjit-Lall.pdf>

Laux C and Leuz C, „Did Fair Value Accounting Contribute to the Financial Crisis?“ ECGI Working Paper Series in Finance, Working Paper No 266 October 2009 <http://papers.ssrn.com/sol3/papers.cfm? abstract_id=1487905>

Moreno R, „Policymaking from a Macro prudential Perspective“ BIS Working Paper No 336, January 2011

Ojo M, “Financial Stability, New Macro Prudential Arrangements and Shadow Banking: Regulatory Arbitrage and Stringent Basel III Regulations” http://mpra.ub.uni-muenchen.de/31319/1/MPRA_paper_31319.pdf and http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1859543

Ojo M, „The Role of the IASB and Auditing Standards in the Aftermath of the 2008/2009 Financial Crisis“ European Law Journal, Vol. 16, No. 5, September 2010, pp. 604–623

Prat A, „The Wrong Kind of Transparency“ LSE STICERD Research Paper No. TE439 October 2002 at page 5 of 51 <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1160984>

Scott H, „Reducing Systemic Risk Through the Reform of Capital Regulation“ Journal of International Economic Law 13(3) at pages 766-767.

Tarullo D, “The Volcker Rule” Testimony before the Subcommittee on Capital Markets and Government Sponsored Enterprises and the Subcommittee on Financial Institutions and Consumer Credit, Committee on Financial Services, U.S. House of Representatives, Washington, D.C. January 18, 2012 http://www.federalreserve.gov/newsevents/testimony/tarullo20120118a.htm

Walter S, Secretary General of the Basel Committee on Banking Supervision at the Risk Europe Pre Conference Summit, Brussels 4 April 2011.