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IMA tells MPs toxic asset fears prevent its members investing in bank reconstruction

The Investment Management Association told MPs that some of its members are not prepared to invest in bank reconstructions because they feel institutions have yet to disclose exposure to toxic assets.

Speaking at a Treasury select committee hearing on accounting standards and the banking crisis IMA director Liz Murrall said that she had written to members of the IMA board to ask whether they were going to invest in
UK bank reconstructions.

She read out one of the responses she received from a board member.

It said: “In our view investors are sceptical about investing in banks because they don’t believe the full impact of structured credit losses has been taken in the accounting. We feel it is necessary for the banks to fully write down the toxic assets before any investor confidence can be brought.”

The IMA says that fair value accounting would help to recognise losses fully and should be part of the solution to the current crisis and restoring investor confidence.

But British Bankers’ Association executive director of financial policy and operations Paul Chisnall, who also gave evidence to MPs this morning, does not believe that fair value accounting should be extended as it would force banks to make huge writedowns based on credit spreads in the current dislocated markets.

He said: “My views are that the current mixed measurement model is appropriate. What I don’t support is a move to extend fair value accounting to into the long-term banking book, because I think that if you were to take that step you will see very, very significant losses write across Europe and America and you would see tens of billions of dollars of writedowns simply because the current market credit spread is so high in relation to historic standards.

“I think that would be a very dangerous step for us to take.”

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