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Regulation: Banks win greater accounting flexibility

Amendments made to accounting rules by the International Accounting Standards Board (IASB) in mid October could allow banks to write back billions in losses incurred in trading books.

While banks should be pleased with this development, it could end up being a pyrrhic victory as certain accounting experts say changing the rules will reduce transparency and possibly investor confidence. Deutsche Bank has already announced a surprise third-quarter profit of €435 million thanks to the accounting change

Banks have until November 15 to determine what assets to move out of their trading books. Part of the deal is that banks must provide detailed disclosure on the assets moved. They will also have to run two books on the assets they move — one on a mark-to-market basis and the other on an accrual basis.

"It’s actually going to be a lot of extra work. So they’re not going to do that if they can avoid it," says Bridget Gandy, head of accounting research at Fitch Ratings in London. "That means if we do see banks reclassifying a lot of their assets, we would be quite suspicious about why they might be doing that. We would think they might be trying to hide something. If banks start moving assets from somewhere they’re marking to market and telling the world what the price is, to a place where they’re taking impairment charges where they see fit, they’re hiding information."

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