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The macroeconomic impact of IAS

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  • Gwénaëlle Flandrin-Le Maire
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    Abstract

    [eng] This paper deals with the main advantages and disadvantages of using the fair value method to value assets and liabilities and the potential macroeconomic impact of the application of the IAS standards to financial institutions. Although valuation at historical cost does not of course provide all of the information necessary to assess risk exposure, there are some major drawbacks to the comprehensive application of fair value accounting. This change in accounting procedures will affect the measurement of bank earnings and capital and will also impact prudential ratios. On the macroeconomic level, indiscriminate application of the fair value principle risks increasing the volatility of earnings and capital in the banking industry. This would decrease financial security, which would be contrary to the objective of accounting standard setters. Its application could amplify credit cycles and could also transfer interest-rate risk to non-financial economic agents and possibly even reduce the total volume of lending. . JEL classifications : G14, G21, M41

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    File URL: http://dx.doi.org/doi:10.3406/ecofi.2003.4750
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    File URL: http://www.persee.fr/articleAsPDF/ecofi_1767-4603_2003_num_71_2_4750/ecofi_1767-4603_2003_num_71_2_4750.pdf?mode=light
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    Bibliographic Info

    Article provided by Programme National Persée in its journal Revue d'économie financière (English ed.).

    Volume (Year): 71 (2003)
    Issue (Month): 2 ()
    Pages: 107-120

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    Handle: RePEc:prs:recofi:ecofi_1767-4603_2003_num_71_2_4750

    Note: DOI:10.3406/ecofi.2003.4750
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    Web page: http://www.persee.fr/web/revues/home/prescript/revue/ecofi

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    1. Allen, Franklin, 1990. "The market for information and the origin of financial intermediation," Journal of Financial Intermediation, Elsevier, vol. 1(1), pages 3-30, March.
    2. Berger, Allen N. & King, Kathleen Kuester & O'Brien, James M., 1991. "The limitations of market value accounting and a more realistic alternative," Journal of Banking & Finance, Elsevier, vol. 15(4-5), pages 753-783, September.
    3. Anil Kashyap & Jeremy C. Stein, 1993. "Monetary Policy and Bank Lending," NBER Working Papers 4317, National Bureau of Economic Research, Inc.
    4. Berlin, Mitchell & Saunders, Anthony & Udell, Gregory F., 1991. "Deposit insurance reform: What are the issues and what needs to be fixed?," Journal of Banking & Finance, Elsevier, vol. 15(4-5), pages 735-752, September.
    5. Berger, Allen N. & Herring, Richard J. & Szego, Giorgio P., 1995. "The role of capital in financial institutions," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 393-430, June.
    6. Geroski,Paul A. & Gregg,Paul, 1997. "Coping with Recession," Cambridge Books, Cambridge University Press, number 9780521626019, October.
    7. John H. Boyd & Edward C. Prescott, 1985. "Financial intermediary-coalitions," Staff Report 87, Federal Reserve Bank of Minneapolis.
    8. Calomiris, Charles W & Kahn, Charles M, 1991. "The Role of Demandable Debt in Structuring Optimal Banking Arrangements," American Economic Review, American Economic Association, vol. 81(3), pages 497-513, June.
    9. Eccher, Elizabeth A. & Ramesh, K. & Thiagarajan, S. Ramu, 1996. "Fair value disclosures by bank holding companies," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 79-117, October.
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