Financial instruments fair value accounting for (not against) the banking industry

The paper analyses the effects of three sets of accounting rules for financial instruments - Old IAS before IAS 39 became effective, Current IAS or US GAAP, and the Full Fair Value (FFV) model proposed by the Joint Working Group (JWG) - on the financial statements of banks. We develop a simulation model that captures the essential characteristics of a modern universal bank with investment banking and commercial banking activities. We run simulations for different strategies (fully hedged, partially hedged) using historical data from periods with rising and falling interest rates. We show that under Old IAS a fully hedged bank can portray its zero economic earnings in its financial statements. As Old IAS offer much discretion, this bank may also present income that is either positive or negative. We further show that because of the restrictive hedge accounting rules, banks cannot adequately portray their best practice risk management activities under Current IAS or US GAAP. We demonstrate that - contrary to assertions from the banking industry - mandatory FFV accounting adequately reflects the economics of banking activities. Our detailed analysis identifies, in addition, several critical issues of the accounting models that have not been covered in previous literature. December 2002. Revised: June 2003. Later version: http://publikationen.ub.uni-frankfurt.de/volltexte/2005/1026/ with the title: "Accounting for financial instruments in the banking industry : conclusions from a simulation model

Accounting for financial instruments in the banking industry : [Version Juli 2002]

Recent changes in accounting regulation for financial instruments (SFAS 133, IAS 39) have been heavily criticized by representatives from the banking industry. They argue for retaining a historical cost based "mixed model" where accounting for financial instruments depends on their designation to either trading or nontrading activities. In order to demonstrate the impact of different accounting models for financial instruments on the financial statements of banks, we develop a bank simulation model capturing the essential characteristics of a modern universal bank with investment banking and commercial banking activities. In our simulations we look at different scenarios with periods of increasing/decreasing interest rates using historical data and with different banking strategies (fully hedged; partially hedged). The financial statements of our model bank are prepared under different accounting rules ("Old" IAS before implementation of IAS 39; current IAS) with and without hedge accounting as offered by the respective sets of rules. The paper identifies critical issues of applying the different accounting rules for financial instruments to the activities of a universal bank. It demonstrates important shortcomings of the "Old" IAS rules (before IAS 39), and of the current IAS rules. Under the current IAS rules the results of a fully hedged bank may have to show volatility in income statements due to changes in market interest rates. Accounting results of a partially hedged bank in the same scenario may be less affected even though there are economic gains or losses

Accounting for financial instruments in the banking industry: conclusions from a simulation model

The paper analyses the effects of three sets of accounting rules for financial instruments - Old IAS before IAS 39 became effective, Current IAS or US GAAP, and the Full Fair Value (FFV) model proposed by the Joint Working Group (JWG) - on the financial statements of banks. We develop a simulation model that captures the essential characteristics of a modern universal bank with investment banking and commercial banking activities. We run simulations for different strategies (fully hedged, partially hedged) using historical data from periods with rising and falling interest rates. We show that under Old IAS a fully hedged bank can portray its zero economic earnings in its financial statements. As Old IAS offer much discretion, this bank may also present income that is either positive or negative. We further show that because of the restrictive hedge accounting rules, banks cannot adequately portray their best practice risk management activities under Current IAS or US GAAP. We demonstrate that - contrary to assertions from the banking industry - mandatory FFV accounting adequately reflects the economics of banking activities. Our detailed analysis identifies, in addition, several critical issues of the accounting models that have not been covered in previous literature

Hepatic Hedgehog signaling contributes to the regulation of IGF1 and IGFBP1 serum levels

Background Hedgehog signaling plays an important role in embryonic development, organogenesis and cancer. In the adult liver, Hedgehog signaling in non-parenchymal cells has been found to play a role in certain disease states such as fibrosis and cirrhosis. However, whether the Hedgehog pathway is active in mature healthy hepatocytes and is of significance to liver function are controversial. Findings Two types of mice with distinct conditional hepatic deletion of the Smoothened gene, an essential co-receptor protein of the Hedgehog pathway, were generated for investigating the role of Hedgehog signaling in mature hepatocytes. The knockout animals (KO) were inconspicuous and healthy with no changes in serum transaminases, but showed a slower weight gain. The liver was smaller, but presented a normal architecture and cellular composition. By quantitative RT-PCR the downregulation of the expression of Indian hedgehog (Ihh) and the Gli3 transcription factor could be demonstrated in healthy mature hepatocytes from these mice, whereas Patched1 was upregulated. Strong alterations in gene expression were also observed for the IGF axis. While expression of Igf1 was downregulated, that of Igfbp1 was upregulated in the livers of both genders. Corresponding changes in the serum levels of both proteins could be detected by ELISA. By activating and inhibiting the transcriptional output of Hedgehog signaling in cultured hepatocytes through siRNAs against Ptch1 and Gli3, respectively, in combination with a ChIP assay evidence was collected indicating that Igf1 expression is directly dependent on the activator function of Gli3. In contrast, the mRNA level of Igfbp1 appears to be controlled through the repressor function of Gli3, while that of Igfbp2 and Igfbp3 did not change. Interestingly, body weight of the transgenic mice correlated well with IGF-I levels in both genders and also with IGFBP-1 levels in females, whereas it did not correlate with serum growth hormone levels. Conclusions Our results demonstrate for the first time that Hedgehog signaling is active in healthy mature mouse hepatocytes and that it has considerable importance for IGF-I homeostasis in the circulation. These findings may have various implications for mouse physiology including the regulation of body weight and size, glucose homeostasis and reproductive capacity

HYPOTHESIS Open Access

Hepatic autophagy is differentially regulated in periportal and pericentral zones- a general mechanism relevant for other tissues

Improved variational principle for bounds on energy dissipation in turbulent shear flow

We extend the Doering-Constantin approach to upper bounds on energy dissipation in turbulent flows by introducing a balance parameter into the variational principle. This parameter governs the relative weight of different contributions to the dissipation rate. Its optimization leads to improved bounds without entailing additional technical difficulties. For plane Couette flow, the high-Re-bounds obtainable with one-dimensional background flows are methodically lowered by a factor of 27/32.Comment: 15 pages, RevTeX, 3 postscript figure

Investigation of the membrane localization and distribution of flavonoids by high-resolution magic angle spinning NMR spectroscopy

AbstractTo investigate the structural basis for the antioxidative effects of plant flavonoids on the lipid molecules of cellular membranes, we have studied the location and distribution of five different flavonoid molecules (flavone, chrysin, luteolin, myricetin, and luteolin-7-glucoside) with varying polarity in monounsaturated model membranes. The investigated molecules differed in the number of hydroxyl groups attached to the polyphenolic benzo-γ-pyrone compounds. To investigate the relation between hydrophobicity and membrane localization/orientation, we have applied 1H magic angle spinning NMR techniques measuring ring current induced chemical shift changes, nuclear Overhauser enhancement cross-relaxation rates, and lateral diffusion coefficients. All investigated flavonoids show a broad distribution along the membrane normal with a maximum in the lipid/water interface. With increasing number of hydroxyl groups, the maximum of this distribution is biased towards the lipid headgroups. These results are confirmed by pulsed field gradient NMR measurements of the lateral diffusion coefficients of phospholipids and flavonoids, respectively. From the localization of different flavonoid protons in the membrane, a model for the orientation of the molecules in a lipid bilayer can be deduced. This orientation depends on the position of the polar center of the flavonoid molecule

Correlation between β-catenin mutations and expression of Wnt-signaling target genes in hepatocellular carcinoma

Aberrant Wnt-signaling caused by mutants of β-catenin, a key regulator of the canonical Wnt-signaling pathway, is frequently detected in cancer. Only recently, it was suggested that in hepatocellular carcinoma (HCC) the expression of the target gene glutamine synthetase (GS) is a highly reliable marker for the identification of β-catenin mutations. In order to prove this hypothesis, 52 samples from human hepatocellular carcinomas were analysed for the activation of β-catenin and the expression of GS. In total, 45 samples stained positive for cytoplasmic/nuclear β-catenin. A strong correlation between expression of GS and activated β-catenin (100% of nuclear and 84% of cytosolic) was found. However, among 35 GS positive tumors that were analysed for β-catenin mutations no mutations were detected in 25 GS-positive carcinomas although 24 out of the 25 carcinomas exhibited at least abnormal expression of β-catenin. Since the mutational analysis identified 9 different point mutations of the β-catenin gene including the rare mutation H36P and the yet unknown mutation P44A it was asked whether these mutations may differently effect β-catenin target genes. Therefore, expression plasmids for different mutations were constructed and cotransfected with the TOP-flash luciferase reporter and a reporter carrying the GS-5'-enhancer. The experiments confirmed that there are differences between different β-catenin target sequences and different β-catenin mutations. In addition, the failure that the endogenous expression of GS in GS-negative cells was not induced by the transient transfection experiment indicated that the effect of β-catenin on the GS-5'-enhancer is only one aspect of gene activation induced by β-catenin