Procyclicality and Fair Value Accounting

WPIEA2009039 Image
Price:  $18.00

Author/Editor: Juan Sole, Alicia Novoa, Jodi G. Scarlata
Release Date: © March, 2009
ISBN : 978-1-45187-187-6
Stock #: WPIEA2009039
Stock Status: Available

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In light of the uncertainties about valuation highlighted by the 2007-2008 market turbulence, this paper provides an empirical examination of the potential procyclicality that fair value accounting (FVA) could introduce in bank balance sheets. The paper finds that, while weaknesses in the FVA methodology may introduce unintended procyclicality, it is still the preferred framework for financial institutions. It concludes that capital buffers, forward-looking provisioning, and more refined disclosures can mitigate the procyclicality of FVA. Going forward, the valuation approaches for accounting, prudential measures, and risk management need to be reconciled and will require adjustments on the part of all parties.


Business cycles , Capital markets , Economic development , Economic policy , Financial institutions and markets , Monetary policy

More publications in this series: Working Papers

More publications by: Juan Sole ; Alicia Novoa ; Jodi G. Scarlata