To understand this debate, its origins and undulations, it is worth starting at the very beginning. Although book-keeping has far earlier antecedents, modern accountancy is believed to have begun in the Italian cities of Genoa, Venice and Florence in the 14th century. It is no coincidence that modern banking emerged at precisely the same time in precisely the same cities. Banks emerged to service rapidly expanding commercial companies. And double-entry book-keeping became an essential means of recording and tracking who owed what to whom, oiling the wheels of finance. It is no coincidence, too, that the first-known description of accountancy was provided by an Italian, Luca Pacioli, in the late 15th century. 2 Pacioli was not your typical accountant. A wandering Franciscan monk, tutor and mathematician, he was friend and sometime collaborator of Leonardo de Vinci. Although comfortably the less famous of the two, Pacioli is still known today as the father of modern accounting. From those beginnings, double-entry began to spread north within Europe during the Middle Ages: to Germany in the 15th century, Spain and England in the 16th century and Scotland in the 17th century. By the late 18th century, Goethe had called double-entry “among the finest inventions of the human mind”. 3 Some people are easily impressed. Despite that, the progress of double-entry was surprisingly slow. At the start of the 19th century, there were only eleven Londoners who listed their occupation as “accomptants”. Imagine. The 19th century marked a turning point. In the UK, joint stock companies began to spring up.

A more ambitious alternative would be to seek a more systemic and standardised valuation methodology in the first place, against which different approaches can be cross-checked. The key here would be to establish an objective measure of expected loss, less susceptible to the excess volatility of market prices but adept at picking up its timely signals. In the language of George Shackle, stricter valuation standards would help place some bounds on the expectations and imaginations of bankers. This is a role which neither accountants nor regulators are best placed to carry out. It would require a body with both expertise in valuation and objectivity. It would seek consistency and, as far as possible, accuracy in valuations across asset classes, institutions and countries. An International Valuation Standards Board already exists. But it standards have only been adopted in around half a dozen countries. Accounting and regulation already have fora to support consistency of standards. During this crisis, valuation practices have been every bit as important. Perhaps they too need international recognition.   Business models matter, especially for banks  Accounting standards already reflect characteristics on the assets side of banks’ balance sheet. For example, IASB standards require consideration of the cashflow characteristics of assets (for example, specified cashflows of interest and principal) and the intentions of the holder (for example, to collect the contractual cashflows). But for banks the characteristics of their liabilities may be every bit as important as their assets. Indeed, at times of stress in funding markets, liability characteristics may be more important.