On November 28, the Basel Committee released a consultative document, “Supervisory Guidance for Assessing Banks’ Financial Instrument Fair Value Practices,” that proposes guidelines for regulatory oversight of a banking organization’s fair value determinations. Comments are due by February 6, 2009.
The proposal implements one of the key recommendations in the April 2008 report of the Financial Stability Forum on enhancing market and institutional resilience. The proposal emphasizes the importance of corporate governance processes to guide and check fair value decisions, reliable inputs and diverse information sources, independent verification and validation processes, the disclosure of uncertainties about valuations to stockholders and other stakeholders, consistency of valuations, and regulatory oversight. While doubtlessly of interest to banking organizations globally, the proposal does not appear to go extensively beyond what GAAP and the federal banking agencies already require of U.S. banking organizations.