Banks are overstating losses, says King

[Legal Beagles]

Britain's banks are overstating losses from the turmoil in the credit markets and the sub-prime lending debacle, the Bank of England says.


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[argentarius]

Re: Banks are overstating losses, says King

Strange inconsistency in the comments from the Bank.

Yesterday's comments from Merv were very sensible:

Yesterday, in evidence to the Treasury Select Committee, the Governor of the Bank, Mervyn King, said "the approach of mark to market is actually a sensible one. Of course, if there is no market and no prices there needs to be something you can use as a substitute... but to go back to something else would be a retrograde step. Where banks have made progress is to be as open as possible about those losses. After all, all the losses we have seen don't correspond to cash losses... It's quite conceivable that in a year's time these prices will have risen, in which case banks will be marking to market and showing significant profits again".

and I can't disagree with anything he says. But today's comments are way off beam.

All banks can do is recognise assets at their best estimate of their value - that's what the accounting rules require them to do, and that's the obvious common-sense thing to do. How anyone at the Bank can suggest that they should include assets at some fictional over-optimistic value, I can't imagine.

It's also interesting that the Bank are claiming that, among other things, their Special Liquidity Scheme is causing the credit markets to improve. I haven't read, anywhere, anything about the actual level of take-up of the funds available under this scheme and it wouldn't surprise me if, in fact, it's rather lacklustre and therefore that the impact is minimal. Indeed, I remain to be convinced that the Special Liquidity Scheme will do anything to sort out the banks' funding crisis.