, at least for systemically important financial institutions. internal capabilities should be developed to exercise independent judgment on credit risks at such organizations. 2 ) fair value accounting, mark - to - market and mark - to - model both ifrs and gaap require mixed value measurements of different type of assets and liabilities according to their features and the management's intentions of holding them, i. e. assets on the trading book and available - for - sale assets should be measured on the fair value basis, while hold - to - maturity assets, loans and liabilities without an objective fair value should be recorded at historical costs. gaap and ifrs define fair value in a similar way, which is a price at which an asset and liability can be traded with a willing counterparty in an orderly manner. both accounting frameworks provide measurement approaches at differentiated levels. level 1 : prices can be observed on active market, which are used to measure the value of assets and liabilities, a practice called mark - to - market. level 2 : when there is no active market, prices are assessed by using models with observable parameters as inputs, a process called mark - to - model. measurement approach used on level 3 is similar to the mark - to - model approach, but it involves unobservable parameters and model assumptions as inputs. both ifrs and gaap require disclosure of the adoption of fair value approaches and specific assumptions as well as risk exposures and sensitivities. the problems of fair value accounting have been exposed by the current crisis. first, compared with the historical cost approach, fair value accounting intensifies market fluctuations. while the fair value approach is more dynamic and can better reflect the real time value of assets and liabilities, it also magnifies the changes in their values and increases the volatility of returns through the profit and loss account as a consequence. as a result of the massive collateralized securities they held, financial institutions registered mounting unrealized losses which actually involved no cash flow under the fair value rule. though these losses were only meaningful in accounting, such astronomical book losses distorted investors'expectations and formed a vicious cycle of prices tumbling – asset writedown “ panic selling ” further prices slumps. second, the poorly guided adoption of fair value in non - active markets exacerbated market volatility. as defined, the using of fair value approaches must be based on the prerequisite of orderly trading. at times of crisis, as

the securities industry, the shaky firms were closed down and some important ones received government capital injection and were restructured. their customers'cash accounts were put into independent custodian arrangements with the major banks, thus removing the possibility of customer asset commingling and misappropriations. the banking reform and the securities industry cleanup have proved to be successful and have laid a solid foundation for the financial sector to withstand economic downturn, in particular the ongoing global financial crisis. for example, despite the steep drop of the stock market since late 2007, no securities firms have gotten into big trouble so far. and the major banks are in a strong position to weather economic slowdown. icbc, ccb and boc top the global list of banks'market capitalizations. a more robust financial industry after the reform places china in a better position to withstand the financial crisis. meanwhile, it should be noted that china's financial system has been helped by the progressive opening - up strategy and its limited exposure to overseas markets. we should bear in mind that despite the notable achievements in banking reform, the major banks have not gone through a full business cycle and still have much to improve. an economic slowdown will be the ultimate stress test for the robustness of the banks'strengths. irrespective of china's sound financial sector, the chinese economy, especially the export sector, has felt the impact brought by the slowdown of the global economy. since the fourth quarter of 2008, as international economic crisis worsened and exerted greater impacts on china's economy, the chinese government made rapid responses by decisively adopting a proactive fiscal policy and an adaptively easing monetary policy, and launching a bundle of timely, targeted and temporary policies and measures. first, ten measures were launched to stimulate domestic demand and promote stable and relatively rapid economic growth. the central government planned to invest an extra 4 trillion rmb over two years, which would mainly go to the agricultural sector, welfare and affordable housing, transportation infrastructure, and energy conservation and emission reduction. second, ten measures to revitalize the industrial sectors were initiated, aiming to strengthen policy support for enterprises. at present, the revitalization plans cover 10 industries including the light industry, automobiles, steel, textile, equipment manufacturing, shipping, petrochemicals, non - ferrous metals, it and logistics, with the aim to curb and reverse the trend of declining growth in these industries. third, bolster financial support for economic developments