Indeed, there is a strong case for basing asset valuations more systemically on the characteristics of banks’ liabilities, as well as their assets. 9  4  Giffords and Mainelli (2009). BIS central bankers’ speeches  Third, the maturity mismatch on banks’ balance sheets generates an inherent fragility. This makes assessments of “going concern” by the auditing profession problematic. A run on a bank with short-duration liabilities could call into question a going concern assessment in very short order. The situation is made worse by the fact that, at present, the options open to auditors when summarising a firm’s going concern status are effectively binary: either issue a “clean” report or not. For auditors, this can be an invidious choice. A clean verdict runs the risk of that judgement being quickly invalidated if maturity mismatches are exposed by a liquidity run. But anything other than a clean report might itself provoke that very run and hence become self-fulfilling. A more graduated, less binary, approach to classifying banks’ accounts may be needed if auditors are to avoid finding themselves stuck between the devil and the deep blue sea. Conclusion To date, accounting rules for banks have bent with the financial stability wind in ways which have amplified investor and regulatory uncertainty. To lean against the prevailing wind, accounting rules for banks may need to recognise more explicitly their differences. It is, after all, precisely these differences that justify separate regulatory and resolution regimes for banks.
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