Research Note: Revisiting Fair Value Accounting - Measuring Commercial Banks' Liabilities

12 Pages Posted: 21 Sep 2003


IAS 39, (IASB, 2000), requires assets to be marked to fair value if held-for-trading, available-for-sale purposes, or if they are derivatives; held-to-maturity securities, originated loans and originated securities are measured at amortized cost, providing they are not held-for-trading. Financial liabilities are measured at amortized cost except those that are held-for-trading or derivatives. A proposed amendment would accommodate improved fair value measurement of financial instruments. Commercial banks are greatly affected by any accounting standard concerning the recognition and measurement of financial instruments, whether related to assets or liabilities. This article demonstrates that the existing and proposed standards perpetuate the mismeasurement of interest rate risk for commercial banks. Under IAS 39 banks that have a balanced position, that is, no interest rate risk, counterfactually could show large changes in income through interest rate changes. An alternative accounting treatment, full fair value reporting of financial assets and liabilities, including all loans and deposits, is offered. Presently fair value data are mandated as footnote disclosure.

Keywords: commercial banks, fair value, liabilities, measurement

JEL Classification: M41, M44, G21, G28

Suggested Citation

Gray, Robert, Research Note: Revisiting Fair Value Accounting - Measuring Commercial Banks' Liabilities. Abacus, Vol. 39, pp. 250-261, June 2003. Available at SSRN:

Robert Gray (Contact Author)

University of Sydney ( email )

University of Sydney
Sydney NSW 2006, NC

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