With close cooperation from risk managers and other professionals, the Committee is carefully analysing how to help put valuation practices on a sounder long term footing. This is a topic the Committee is deeply concerned with, given the growing share of exposures that have been subject to mark-to-market valuations and which then flow through to earnings and capital.
Disciplined fair valuation practices and clear sound practices can help make firms more resilient to stress. But poor practices can create major vulnerabilities for individual banks and for the financial system. Furthermore, it also is critical that banks improve their firm wide stress testing practices.