For fragmentation the cure may be worse than the disease

"Reconciling Friedman and Colbert", is an ambitious goal that set the Minister of economy, Christine Lagarde, from the lessons of the G20 on 2 April on Wall Street. While stressing the footprint of a "french touch" in the final release, it has not hidden the need for an approach "realistic and cooperative" global to avoid the danger of fragmentation of the financial regulation. Specifically, the Minister for the economy, which intervened yesterday both in the Global Financial Forum and the annual meeting of Paris Europlace in New York, ruled for a revision of the accounting system of the "fair value" which requires the companies, and in particular banks, to register the value of their assets at market value updated to the date of the balance sheet.

"There is a broad consensus on the need for a strengthening of the regulation to the crisis." "But, if this consensus is that regional or national responses we may end up with a regulatory fragmentation", warned Christine Lagarde. A stone in the garden of the IASB (International Accounting Standards Board), the body of accounting standards European, who refuses to align with the relaxation of the "fair value" adopted by its American counterpart (FASB) on 2 April. "The release of the g-20 clearly emphasizes the need to review accounting standards to deal with the assets for which the extent of the"fair value"has no meaning and for long-term investments", reminded the Minister of economy in stressing the need to reduce the procyclical nature of accounting standards which promote short-termism. "For fragmentation, the cure may be worse than the disease." Christine Lagarde has also recalled the need to adopt a specific regulatory framework for hedge funds.

Effective equality of treatment

For its part, the Chairman of Paris Europlace, Gérard Mestrallet, insisted on the need to ensure the implementation of equal effective treatment ("level playing field") for all investors. More reserved on the balance sheet of the G20 in London, he made no secret that a number of points are still "problematic" for Paris Europlace. In particular, "the proposals for reform of the accounting standards remain unclear" and the new regime of banking prudential ratios in terms of liquidity.

To avoid distortions of competition with the United States, Paris Europlace supported a review of the scheme of the "mark-to market" ("fair value") established in 2007 and a "new accounting approach for illiquid assets.

Convinced that enforcement hardheaded of the "fair value" encouraged the volatility of the markets, Europlace President pleads for a reform of the governance of the IASB through a strengthening of the participation of users to ensure "greater consistency between the accounting field and prudential rules.

Other recommendations advocated by Paris Europlace include harmonisation of the rules of equity and lever ("leverage ratio") ratios so "that they did not dampen the activity of the banks and that they are applied evenly," strengthening of the supervision and registration of rating agencies, a "proportionate" regulation of hedge funds...

"A serious mistake."

Paris Europlace, estimated at 18 billion dollars the total of losses and write-downs of assets of the French banks since the beginning of the crisis (from 35 billion in Germany, 180 billion for the United Kingdom and 400 billion to us banks), the quality of the regulation is the key to the strength of financial markets.

The Paris Europlace call for harmonisation occurs at the point where many economists speculate on the effects of the relaxation of the "fair value" in the United States. In an interview with the "Financial Post" dated April 20, the Vice-Chairman of the IASB, Tom Jones, strongly criticized the initiative of the FASB in cautioning the accounting regulators against "loss of credibility" resulting from their submission to the political pressure.

Meanwhile, Economist Nouriel Roubini (University of New York) considers that the questioning of the "fair value" rule by the FASB is "a serious mistake" which could undermine the confidence of investors in the term for us banks ' manipulate ' their results in the last quarter.