Monday, October 20, 2008

PricewaterhouseCoopers' Survey: Bank, other Financial Services Board Members Say Mark to Market is Not to Blame for Crisis

Pricewaterhouse Coopers recently completed a survey of 300 board members, two-thirds of whom sit on the audit committee of financial institutions, taken between September 22nd and October 4th at the 2008 PricewaterhouseCoopers Financial Services Audit Committee Forum.

Respondents were surveyed about mark to market accounting: Nearly two-thirds (65%) of financial services board members surveyed agree that mark-to-market accounting, also known as fair valuation, creates volatility in the markets. However, 83 percent disagreed with the statement that mark-to-market accounting is to blame for the current credit crisis.

About the current financial crisis:
  • 30 % view the situation as a reminder of the need for more disciplined risk taking during periods of growth
  • 20 % say it is a reflection of too much focus on the short-term (investing, reporting, compensation).
  • 13% found the positive in the tumultuous economic climate and regard the situation as an opportunity that will eventually strengthen the financial services industry.
  • 25%sees this as an example of the urgent need for modernization of the financial services regulatory framework to reflect today's global, integrated capital markets system.

Other findings:
  • 96 percent of board members said they think that financial institutions that retain risks to off-balance sheet entities should in the future publicly disclose aggregate information on a regular and timely basis, including the quantity and sensitivity to credit, market and liquidity risks and any changes to those risk exposures over time.
  • 65 percent of respondents feel that corporate boards lack the tools and transparency to properly assess risks and exposure.
  • 88 percent said the scope of risk management for financial institutions does not adequately account for their exposure to off-balance sheet entities.
  • 80% feel they could do more to reduce the chance of future industry instability, according to findings of a survey released today by PricewaterhouseCoopers' Financial Services Industry Group. However, the survey also revealed a desire for greater transparency to accurately measure exposure to risk.
  • More than 95 percent of the board members asked said they believe greater clarity is required as it relates to what is and what is not reported on an organization's balance sheet
  • 77 percent said existing valuation tools are not robust enough.
When asked to rank their four top priorities over the next twelve months, audit committee board members ranked them as follows (in order of importance):
  • Transparency and financial reporting
  • Internal controls and tightened margin/collateral controls
  • Enterprise-wide risk management and buy-in from business lines
  • Systematic risk management across the industry

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