Ward says the accounting treatment of mortgages held as tradable assets is unforgiving in the current climate.
He suggests the answer is to move tradable assets into long-term investments, which he says have a less severe accounting regime.
Ward says: “This would need regulatory co-operation to allow a shift in accounting treatment, since accountants are not inclined to allow an arbitrary change in policy just because it makes the balance sheet and profit and loss of a bank look better.
“The grim alternative is that the cyclical marking down of assets will mean that they will continue to force banks to write losses against capital that do not represent the real risks of those loans. This will continue to erode capital and shake confidence in the banking system.”
John Charcol senior technical manager Ray Boulger says: “If, in light of experience, these accounting rules are causing more problems than they are solving, they should be revisited. It would have to be done carefully so that it is not perceived as a bail-out for banks.”
Credit crunch, p12