, with reconciliation to the net and gross values of all fair - valued assets and liabilities. this initiative can be seen as a first, but important, step towards quantifying the intrinsic uncertainty around the valuation of banks ’ asset portfolio. for perhaps the first time, it provides confidence intervals around banks ’ balance sheets – what some have called diamond ( 1984 ). in the language of knight ( 1921 ). epstein and wang ( 1994 ). financial services authority ( 2011 ). these buckets would provide additional granularity, and allow greater comparison across banks, over and above the classification employed by, for example, the ifrs levels 1, 2 and 3. bis central bankers ’ speeches “ confidence accounting ”. 9 the stage is now hopefully set for such principles to be rolled out across europe. for example, the european banking authority ( eba ) is developing binding technical standards on a prudent valuation methodology by end - 2012. these developments are a significant departure from past practices in reporting bank balance sheets. at present, this prudent valuation information will form part of the regulatory return, which may be publicly disclosed. but in time, it would be desirable if it formed part of banks ’ reported annual accounts to maximise investor transparency and consistency. this would parallel the approach used in other realms of public policy to capture economic uncertainty – for example, the “ fan charts ” for inflation and gdp published by the bank of england. bank liabilities and maturity mismatches a second dimension along which banks ’ balance sheets are different is the structure of their liabilities. typically, these have a considerably shorter duration than their assets – in others words, banks engage in maturity transformation. this is one of the main reasons for separate regulatory and resolution rules for banks. but it has a bearing, too, on appropriate accounting rules. to see why, consider a bank with 50 - year assets funded by overnight deposits. the bank intends to hold these assets to maturity. under current rules, holding intent, alongside the characteristics of the assets themselves, is the arbiter of valuation. so those intentions would enable the bank to hold the asset in its banking, rather than trading, book for regulatory purposes. but the liability structure of banks means that holding ability may in practice matter much more than holding intent. for the stylised bank, its 50 - year best intentions could be invalidated within 24 hours. in that event, amortised cost would be a very misleading valuation convention. the bank

financial stability ”, vienna university of economics and business. bis central bankers ’ speeches lord sharman of redlynch ( 2011 ), “ going concern and liquidity risks : lessons for companies and auditors, preliminary report and recommendations of the panel of inquiry ”, available at http : / / www. frc. org. uk / images / uploaded / documents / the % 20sharman % 20report % 20 - % 20final % 200311111. pdf. plantin, g, sapra, h and h s shin ( 2008 ), “ fair value accounting and financial stability ”, university of chicago graduate school of business research paper 08 – 15. simonson, d g and g h hempel ( 1993 ), “ banking lessons from the past : the 1938 regulatory agreement interpreted ”, journal of financial services research, pages 249 – 267. bis central bankers ’ speeches