First, it is timely to recall Paul Volcker’s proposal of June last year calling for an international initiative to update accounting standards so as to adequately deal with the complexity of derivative financial instruments. We should do our utmost to ensure that the Enron affair serves as a powerful incentive to speed up efforts in this field.
Second, the case highlights the question of adequate oversight of financial activities undertaken by non-financial corporations. Despite being the main dealer, market-maker, and liquidity provider in important areas of the energy and other derivatives markets, Enron was not required, by either regulators or market practice, to disclose information to its counterparties, or to set aside capital against its trading risks.