LONDON (Reuters) - Britain needs separate accounting rules for banks to allow investors and regulators to properly evaluate risks, as trying to do so now was like trying to “pin the tail on a boisterous donkey”, a senior Bank of England official said.
International Financial Reporting Standards (IFRS), which set accounting methodology, give a “hit and miss” view of the solvency of banks, Andrew Haldane wrote in this month’s edition of the accountancy and business magazine Economia.
Haldane, the Bank’s executive director for financial stability, said Britain’s accounting rules were so badly flawed that getting an accurate view of a bank’s assets was like trying to “pin the tail on a boisterous donkey”.
He said the uncertainty brought about by the financial crisis showed that the “flighty liabilities and uncertain assets” of banks made for a fragile mix.
“If they are to be useful to investors, banks’ financial statements need to capture those fragilities so that risk can be priced,” he wrote.
“This calls for accounting rules that properly recognise the special characteristics of banks’ assets and liabilities. IFRS requirements currently fall short of that objective,” he said.
Reporting by Stephen Mangan; Editing by David Brunnstrom