Fair value accounting and financial stability: challenges and dynamics.

Abstract

Fair value accounting has played a specific role in the current crisis. Its application raises a number of different issues; while some are currently being addressed by the relevant standard setters, others have a more macroeconomic dimension. As regards the immediate drawbacks of the fair value approach, both standard setters and banking supervisors are working on guidance on how to value financial instruments in times of stress and the appropriate internal processes that should be in place in financial institutions to achieve this. However, the crisis has also highlighted some more macro-financial issues. In this respect, central banks, thanks to the overview they have of the fi nancial system and their central role in money markets, seem well-positioned to be the guardians of fi nancial stability. In order to play this role, cooperation must be enhanced between central banks, standard setters and supervisors.