Text 4
Bankers have been blaming themselves for their troubles in
public. Behind the scenes, they have been taking aim at someone else: the
accounting standard-setters. Their rules, moan the banks, have forced them to
report enormous losses, and it's just not fair. These rules say they must value
some assets at the price a third party would pay, not the price managers and
regulators would like them to fetch.
Unfortunately, banks' lobbying now seems to be working. The
details may be unknowable, but the independence of standard-setters, essential
to the proper functioning of capital markets, is being compromised. And, unless
banks carry toxic assets at prices that attract buyers, reviving the banking
system will be difficult.
After a bruising encounter with Congress, America's Financial
Accounting Standards Board (FASB) rushed through rule changes. These gave banks
more freedom to use models to value illiquid assets and more flexibility in
recognizing losses on long-term assets in their income statement. Bob Herz, the
FASB's chairman, cried out against those who "question our motives."
Yet bank shares rose and the changes enhance what one lobby group politely
calls "the use of judgment by management."
European ministers instantly demanded that the International
Accounting Standards Board (IASB) do likewise. The IASB says it does not want
to act without overall planning, but the pressure to fold when it completes it
reconstruction of rules later this year is strong. Charlie McCreevy, a European
commissioner, warned the IASB that it did "not live in a political
vacuum" but "in the real word" and that Europe could yet develop
different rules.
It was banks that were on the wrong planet, with accounts that
vastly overvalued assets. Today they argue that market prices overstate losses,
because they largely reflect the temporary illiquidity of markets, not the
likely extent of bad debts. The truth will not be known for years. But bank's
shares trade below their book value, suggesting that investors are skeptical.
And dead markets partly reflect the paralysis of banks which will not sell
assets for fear of booking losses, yet are reluctant to buy all those supposed
bargains.
To get the system working again, losses must be recognized and
dealt with. America's new plan to buy up toxic assets will not work unless
banks mark assets to levels which buyers find attractive. Successful markets
require independent and even combative standard-setters. The FASB and IASB have
been exactly that, cleaning up rules on stock options and pensions, for
example, against hostility from special interests. But by giving in to critics
now they are inviting pressure to make more concessions.
36. Bankers complained
that they were forced to
[A] follow unfavorable asset evaluation rules
[B] collect payments from third parties
[C] cooperate with the price managers
[D] reevaluate some of their assets.
37. According to the
author , the rule changes of the FASB may result in
[A] the diminishing role of management
[B] the revival of the banking system
[C] the banks' long-term asset losses
[D] the weakening of its independence
38. According to Paragraph
4, McCreevy objects to the IASB's attempt to
[A] keep away from political influences.
[B] evade the pressure from their peers.
[C] act on their own in rule-setting.
[D] take gradual measures in reform.
39. The author thinks the
banks were "on the wrong planet" in that they
[A] misinterpreted market price indicators
[B] exaggerated the real value of their assets
[C] neglected the likely existence of bad debts.
[D] denied booking losses in their sale of assets.
40. The author's attitude
towards standard-setters is one of
[A] satisfaction.
[B] skepticism.
[C] objectiveness
[D] sympathy
|