Fair value accounting and fi nancial stability: challenges and dynamics SYLVIE MATHERAT Director of Financial Stability

Fair value accounting has played a specifi c role in the current crisis. Its application raises a number of different issues; while some are currently being addressed by the relevant standard setters, others have a more macroeconomic dimension. As regards the immediate drawbacks of the fair value approach, both standard setters and banking supervisors are working on guidance on how to value fi nancial instruments in times of stress and the appropriate internal processes that should be in place in fi nancial institutions to achieve this. However, the crisis has also highlighted some more macro-fi nancial issues. In this respect, central banks, thanks to the overview they have of the fi nancial system and their central role in money markets, seem well-positioned to be the guardians of fi nancial stability. In order to play this role, cooperation must be enhanced between central banks, standard setters and supervisors. NB: The views expressed here represent the opinions of the author and do not necessarily express those of the Banque de France or the Basel Committee. ARTICLES Sylvie Matherat: “Fair value accounting and fi nancial stability: challenges and dynamics” 54 Banque de France Financial Stability Review No. 12 – Valuation and fi nancial stability October 2008 The turmoil we have been experiencing for the last year has highlighted a number of challenges for central bankers, supervisor