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Fair Market value overestimated instead of undervalued

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Speech by Hans Hoogervorst, Chairman of the AFM Executive Board IASC Foundation IFRS.

'The majority of assets of most banks consist of their loan-portfolio. The loan-portfolio is still valued at amortized cost and is not subject to fair value accounting. Consequently, there can be no undershooting of the value of these assets as a result of mark-to-market accounting. Quite the opposite, markets are worried that loan portfolios contain hidden losses which will inevitably be incurred as a result of the recession.

It is difficult to assess the net result of the possible underestimation of risk in the loan portfolio and the possible overshooting of risks in assets measured at fair value. Overall, it does not seem likely that bank assets are being hugely undervalued. Most probably, the opposite has been the case. The stress tests by the Federal Reserve of the American banking sector showed clearly that traditional loan assets still have a huge loss potential in the coming years.'

You can download the speech in PDF-format here on this page.

The AFM is committed to promoting fair and transparent financial markets.

As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.

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