Goldman Sachs Group Inc says it has withdrawn from the leading international banking lobby IIF, which it earlier criticised over its plans to change fair value accounting rules, Reuters reports.
“We believe that in times of market stress, it is particularly important to be rigorous about the value of your assets and your liabilities,” says Lucas van Praag, Goldman Sachs spokesman. “We have always had a rigorous approach to fair value accounting.”
The Institute for International Finance (IIF) is working on new accounting and other guidelines, as financial supervisors ponder possible changes in regulation in response to the credit crunch that has cost banks more than $300 billion in losses.
In April, the institute called for an urgent rethink of standards that force banks to put a price on their assets despite choppy markets, saying they could spark a downward spiral and make problems worse. Critics have said the plans would boil down to relaxing the standards, and Van Praag says he has in May described the IIF plan to change the existing fair value standards as “Alice in Wonderland accounting”. Goldman Sachs had left the body on 2 June, Van Praag says.
Fair value rules puts a price on assets and liabilities by looking at their current market value, as opposed to calculating a value based on their original price. The IIF has been looking at refinements in fair value accounting and has been discussing a range of alternative valuation ideas, such as the use of underlying cash flow for illiquid market conditions.
The IIF said on May 28 more discussion of valuation methods is needed, and it is due to release this month recommendations on valuation, risk management, bank executive compensation and other issues.Morgan Stanley, an IIF member, also opposes changes to fair value accounting, a source close to the bank says. Morgan Stanley declined comment.
The IIF is chaired by Deutsche Bank AG Chief Executive Josef Ackermann, and has more than 370 members. Its regular meetings are closely watched by the sector.