Banks caught in DVA dilemma
Accountants want banks to report as profits the impact of widening credit spreads on their liabilities, but regulators are moving in the other direction. The result could be painful deductions from capital, and two very different sets of incentives
The idea of banks booking profits as their credit deteriorates does not sit comfortably with many people – even less so after this accounting concept, the debit value adjustment (DVA), generated combined earnings of $9.35 billion at five US banks in the third quarter of 2011. To critics, these numbers are fictitious, but truth is secondary to consistency for a senior risk manager at one US bank.
“I don’t care about truth in accounting rules. I have to use it, it goes into my reports, I’m charged
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