Banking: Accounting Standards

Lord Flight Excerpts

Monday 19th March 2012 Lords Chamber

Asked by

[Lord Flight]

To ask Her Majesty’s Government whether they have any plans to review the application of international financial reporting standards accounting standards to the banking sector.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, following the financial crisis, the International Accounting Standards Board has taken steps to revise international valuation standards for complex financial instruments. The question of whether there should be a distinct accounting regime for banks was raised in the preliminary report of the Financial Reporting Council inquiry into going concern, chaired by my noble friend Lord Sharman. The panel is considering the response to this report at present. We await its final report with interest.

[Lord Flight]

My Lords, in reply to a question on 19 December the Chancellor of the Exchequer advised that there needed to be a debate about the role of IFRS in the banking crisis. On 19 January, the head of financial stability at the Bank of England commented in a speech that banks needed accounting standards other than IFRS. Does the Minister agree that IFRS contributed to the banking crisis, as it served both to exaggerate profits and capital in good times and vice versa in bad times, and is in need of review?

[Lord Sassoon]

My Lords, having a look at accounting standards in relation to banks is certainly significant. I would not go as far as saying that IFRS had a fundamental role in relation to the financial crisis. There is not significant evidence of that although, as I have had it rather neatly described, you could perhaps describe accounting standards as an accomplice after the fact rather than as being responsible. There are issues that very much need to be looked at. The review that the IASB is doing, very much with the encouragement of the G20, of the financial instruments standard known as IFRS 9, the work that the Financial Reporting Council is doing, which I have referred to, the inquiries coming out of your Lordships’ committee and the most recent hearing last week will all contribute to an important ongoing debate.