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Bankers have been blaming themselves fortheir troubles in public. Behind the scenes, they have been taking aim atsomeone else: the accounting standard-setters. Their rules, moan the banks,have forced them to report enormous losses, and it's just not fair. These rulessay they must value some assets at the price a third party would pay, not theprice managers and regulators would like them to fetch.
Unfortunately, banks' lobbying now seems tobe working. The details may be unknowable, but the independence ofstandard-setters, essential to the proper functioning of capital markets, isbeing compromised. And, unless banks carry toxic assets at prices that attractbuyers, reviving the banking system will be difficult.
After a bruising encounter with Congress,America's Financial Accounting Standards Board (FASB) rushed through rulechanges. These gave banks more freedom to use models to value illiquid assetsand more flexibility in recognizing losses on long-term assets in their incomestatement. Bob Herz, the FASB's chairman, cried out against those who"question our motives." Yet bank shares rose and the changes enhancewhat one lobby group politely calls "the use of judgment bymanagement."
European ministers instantly demanded thatthe International Accounting Standards Board (IASB) do likewise. The IASB saysit does not want to act without overall planning, but the pressure to fold whenit completes it reconstruction of rules later this year is strong. CharlieMcCreevy, a European commissioner, warned the IASB that it did "not livein a political vacuum" but "in the real word" and that Europecould yet develop different rules.
It was banks that were on the wrong planet,with accounts that vastly overvalued assets. Today they argue that marketprices overstate losses, because they largely reflect the temporary illiquidityof markets, not the likely extent of bad debts. The truth will not be known foryears. But bank's shares trade below their book value, suggesting thatinvestors are skeptical. And dead markets partly reflect the paralysis of bankswhich will not sell assets for fear of booking losses, yet are reluctant to buyall those supposed bargains.
To get the system working again, losses mustbe recognized and dealt with. America's new plan to buy up toxic assets willnot work unless banks mark assets to levels which buyers find attractive.Successful markets require independent and even combative standard-setters. TheFASB and IASB have been exactly that, cleaning up rules on stock options andpensions, for example, against hostility from special interests. But by givingin to critics now they are inviting pressure to make more concessions.
36. Bankerscomplained that they were forced to
[A] follow unfavorable asset evaluationrules
[B] collect payments from third parties
[C] cooperate with the price managers
[D] reevaluate some of their assets.
37. Accordingto 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. Accordingto 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. Theauthor thinks the banks were "on the wrong planet" in that they
[A] misinterpreted market priceindicators
[B] exaggerated the real value of theirassets
[C] neglected the likely existence of baddebts.
[D] denied booking losses in their saleof assets.
40. Theauthor's attitude towards standard-setters is one of
[A] satisfaction.
[B] skepticism.
[C] objectiveness
[D] sympathy
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