Tuesday, February 22, 2011

Volcker Calls for Global Accounting Standards in Tribute to IFRS Oversight Chair

In a world of global finance, noted former Fed Chair Paul Volcker, common accounting standards are a matter of fundamental importance. In remarks paying tribute to Tommaso Padoa-Schioppa, former Chair of the IFRS Foundation which oversees the IASB in an effort to achieve global accounting standards, Mr. Volcker said that accounting standards by their nature are detailed and complex but, technical as they may be, they are sometimes highly controversial, politically as well as among businesses. Mr. Padoa-Schioppa was also a former board member of the European Central Bank.

Mr. Volcker praised Chairman Padoa-Schioppa for changing the perception of the IASB oversight body as a self-appointed body of “mandarins” setting out accounting standards insensitive to national priorities to a globally diverse body with a whole-hearted commitment to the mission of achieving common accounting standards around the world. The former Fed Chair also applauded remarks given last year by the oversight chief that more broadly called for globally consistent financial regulations.

Since the financial crisis was global in both its origin and its consequences, reasoned Mr. Padoa-Schioppa in his remarks, coherent prevention requires a global policy. The crisis stemmed largely from the inconsistency between the cross-border span of financial markets and the national span of government. Also playing a key role was regulatory arbitrage in which financial centers competed to attract pieces of the global financial industry.

The former EU central banker did not call for the suppression of national sovereignty but rather an admission that it is not absolute. He noted that the financial crisis was partially fueled by the fact that policy and regulation remained almost exclusively concentrated at the nation-state level and left unmanaged the rapid emerging reality of global financial markets. In his view, reform legislation has only partly corrected this problem since the reforms are generally more responsive to national constituencies than to the call for global governance.

In his view, this trend is reinforced by years of declining international cooperation as the financial markets became global and there was a concomitant shift from strong treaty-based agreements to soft voluntary forums without the power to take binding action.