Lord Turner stressed that accounting standard setters and prudential regulators of banks should co-operate to be sure they address issues arising from the unique nature of banks. He spoke of banking practices that contribute to the problem of pro-cyclicality and said FSA’s preference is:
- to allow the banking book to reflect a more forward-looking approach to loan losses; and
- to limit the use of fair value accounting in the income statement to areas of the trading book where it is most appropriate.
He said accounting systems had to recognise that banks are different because their failures have more extreme effects than failures in other industries. (Source: FSA/PN/011/2010 and Speech)