RD News 28Nov11

• IASB to revise accounting standard:
• Ch Hans Hoogervorst’s Speech
• IFRS 9, the international accounting standard set to replace the existing “fair value” rule, IAS 39 ( the mark-to-market rule which governs when and how banks in over 100 countries must price assets on their books at the going rate), is to be revised, despite the fact that a number of jurisdictions have already adopted it.
• We gradually came to the conclusion that we could make a lot of progress on insurance and convergence by adapting IFRS 9 in a limited way.’
• It was not an easy decision to make. Most importantly because we knew that our constituents that have already adopted might not be very happy.’
• Reuters report: 
• Policymakers in the EU and elsewhere said at the time the existing rule forced banks to price assets at depressed values causing more volatility when markets were already fragile.
• The changes would make IFRS 9 fit better with a separate reform of insurance accounting and help bridge a gap with a U.S. fair value accounting rule reform.

• BoE: Martin Weale: Monetary policy in a weak economy
• Productivity has recovered, but not regained its previous path; and household consumption has been unusually weak.
• Worsened productivity growth is one factor contributing to the weakness in consumption.
• Even if weak consumption is an important factor behind the poor performance of the economy, that does not mean that rapid growth in consumption is the only way of sustaining the recovery.
• Asset purchases, which support current consumption, probably impede the rebalancing of the economy.
• But unless the economic situation improves, there is likely to be a strong case for extending the asset purchase programme after the current one comes to an end.

• Andrew Sheng: The audacity of hedge funds and their lack of righteousness
• It may not be illegal (at least under existing law) to do a trade that tips a nation into abject poverty because there were tragic policy mistakes, but is it morally right to take home billions by accelerating the process of “creative destruction”?
• Hedge funds thrive because of regulatory and information arbitrage. The more the regular banking system is regulated, the more business drifts to the under-regulated shadow banking institutions.
• While hedge funds are not of public concern if they remain small, their herd like effect becomes a real problem when the momentum play can drive even mid-sized nations over the brink. Europe today is a live experiment of gigantic proportions. If someone makes tens of billions through speculation from the failure of some European countries and millions become unemployed, it is no longer a regulatory issue 

• ICFR: Usha Thorat and Margaret Cole join International Advisory Council

• MMF reform: ‘Leave MMFs alone! (John Hawke, Arnold & Porter)
• The ultimate loss to Reserve Primary Fund shareholders when it broke the buck in 08 was less than one cent per share.
• Neither subordinated capital nor a floating NAV will stop runs. Only ready liquidity can deter and allow MMFs to cope with runs, and the proposals that have been suggested do not address liquidity.
• In June and July 11, investors redeemed over 10% of their prime MMF shares, a total in excess of $​167 billion. Some MMFs experienced redemptions of between 20% and 45% of their assets. Yet no MMF broke a buck, and none was unable to meet redemptions.
• The SEC continues to refine its methods from experience and careful analysis of financial data. Its record with MMFs is far better than the record of bank regulators in maintaining the solvency of banks.
• Despite the events of 2008, not a penny of taxpayer money has been lost in the support of MMFs, and the likelihood of losses to taxpayers in the future is extremely remote. The emergency liquidity facilities that were put into place by Treasury and the Fed after the Reserve Fund breakdown did not cost the government anything -- indeed, they made a profit.