... systems that comply with uniform Federal accounting concepts and standards promulgated by the Federal Accounting Standards Advisory ... with system requirements provisions under FFMIA. The Core Financial System Requirements document has been prepared as a continuation ...
Story - antoq - 11/04/2010 - 07:19 - 0 comments - 0 attachments
The global financial crisis triggered by widespread speculative lending and investment in major international financial centres poses two sets of policy challenges. First, it calls for an immediate policy response in order to stabilize financial markets and international capital flows, halt economic decline and initiate recovery. So far major industrial countries have taken a range of measures for these purposes, including bailout operations through infusion of capital into weakened financial institutions and industrial firms and government guarantees for impaired financial assets and bank deposits; significant easing of monetary conditions and speedy and sharp reductions in interest rates; and large fiscal stimulus packages. Developing and emerging economies (DEEs) have also adopted measures to ease credit conditions and stimulate private spending to counter destabilizing and deflationary impulses from the crisis. However, several of them face resource constraints in responding to the crisis with countercyclical policies. There is a strong rationale and some scope for using trade and financial policies to ease the resource constraint. But, in many cases effective policy response depends crucially on the provision of adequate international liquidity at appropriate terms and conditions through multilateral financial institutions.
Secondly, this crisis has indicated once again the need for a fundamental reform of the international financial system in order to secure greater stability and prevent virulent crises with global ramifications. A consensus appears to have emerged among the major players in the world economy on the need for reform and a number of ad hoc initiatives have been launched and proposals put forward in various fora including the United Nations, the Group of 20 and the Bretton Woods Institutions. But to what extent these will result in the kind of changes needed is highly uncertain. The past record in this respect is not very encouraging. Despite a wide agreement on a systemic reform to bring about more effective governance to international finance after a series of crises in emerging economies in the 1990s and proliferation of proposals for reform, the Financing for Development initiative launched has yielded no significant outcome in this respect in the past seven years. DEEs have a considerably greater stake in such a reform in view of disproportionately large damage that international financial instability inflicts on them. It is therefore important that they lead the process and form a coherent view for real change in a broad range of areas of crucial interest to them, including the mandate, resources, operational modalities and governance of the IMF, so as to reduce their vulnerability to financial instability and crises while preserving adequate policy autonomy in managing their integration into the international financial system, and capital flows and exchange rates.
The current banking crisis has raised much criticism of fair value accounting due to the mandatory adoption of SFAS 157 (Fair Value Measurement) in 2007 which resulted in large amounts of write-downs and recognition of credit losses in banks and financial institutions. This criticism has mainly focused on the unreliable value estimation for assets with illiquid markets and the systematic risk induced by excessive volatility under fair value accounting (Andrea et al., 2004; Landsman, 2005), and it has intensified during the current credit crunch. Many financial institutions blame fair value accounting for aggravating the financial crisis at a time where markets are extremely illiquid and proper valuation models are unavailable; some even call on FASB to reassess the new fair value standard. Advocates for fair value accounting, on the other hand, emphasize the benefits in terms of improved transparency and disclosure, promoting market discipline and providing relevant information for decision makers.
Given the ongoing debate amid the financial crisis, it is crucial to have a better understanding of the desirability of different accounting regimes for banks so as to provide guidance for policymakers and regulators in the post-crisis regulatory reform. To that end, this paper examines whether different financial reporting standards for banks provide relevant information for the prudential regulation and discipline of banks. Specifically, in a theoretical model I examine how accounting regimes affect the effectiveness of capital regulation in restricting banks’ risk-taking behaviors.
Using vector autoregressions (VARs) and various identification schemes, researchers have found that shocks to public spending crowd in private consumption. Examples include Blanchard and Perotti (2002), Perotti (2004), Perotti (2007), Fatás and Mihov (2001), Gal?, López-Salido and Vallés (2007), and Mountford and Uhlig (2009). The evidence has been challenged recently in an important paper by Ramey (2009). It is nevertheless frequently cited as a paradox in the context of standard neoclassical models of the business cycle. In both real business cycle (RBC) models and New Keynesian models, exogenous changes in public spending crowd out private consumption due to a negative wealth effect.
We argue that the empirical evidence should not be interpreted as undermining the neoclassical approach. The underlying philosophy of the real business cycle (RBC) approach is to build models in which all agents optimize well-defined objective functions subject to technological and budget constraints. We show that a standard RBC model with an optimizing government generates positive comovement between public spending and private consumption, just as in the empirical literature. In our model, public and private expenditures react endogenously to stochastic shocks affecting preferences and technology. Because the government ultimately cares about households’ welfare, public spending and private consumption tend to respond similarly to the state of the economy. Interestingly, this holds whether private consumption and fiscal spending are substitutes or complements.
