Handbook of Key Global Financial Markets, Institutions, and Infrastructure

Chapter 40

Fair Value Accounting, Disclosure and Financial Stability

R.J. Herring

University of Pennsylvania, Philadelphia, PA, USA

Outline

Introduction

The Role of Accounting Standards 

How Might FVA Have Exacerbated the Financial Crisis? 

Disclosure Policy and the Crisis 

Do Accounting Standards Influence Behavior? 

References 

Introduction

Virtually every chief executive officer of a failed financial institution blamed fair value accounting (FVA) along with short-sellers and hedge funds for his firm’s plight. For example, Martin Sullivan, then CEO of AIG singled out FVA as a major cause of the crisis and called for its suspension.¹ But CEOs were not alone in blaming FVA for the crisis. Former FDIC Chairman William Isaac asserted “The SEC ...