Derivatives Accounting Reform in Europe Faces End-of-Year Deadline

By Christopher Faille, Reporter
HedgeWorld Friday, February 27, 2004

Janet Tavakoli, a consultant and expert witness on structured finance products, said Feb. 25 that the Bank of France is putting a lot of pressure on the French government to resist the pressure of the IASB. But there is resistance throughout Europe, and she sympathizes with it.

“To say that the world will come to an end if they don’t adopt the rules, I think, is wrong,” she added. First, there are substantial arguments to be made against the mark-to-market emphasis of the FASB. Not only should it not be adopted elsewhere, it should perhaps be reconsidered here.

Second, even an ideal set of accounting rules on the treatment of derivatives will not prevent Enron or Parmalat-style debacles. The more pressing issue is transparency, especially in Italy, which Ms. Tavakoli described as “almost a rogue accounting state.”

Third, the IASB has been making adjustments to the rule Previous HedgeWorld Story, so that even if it is adopted broadly before Jan. 1, there still will be discrepancies that will allow for transcontinental arbitrage plays.

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Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors. Ms. Tavakoli has more than 20 years of experience in senior investment banking positions, trading, structuring and marketing structured financial products. She is a former adjunct professor of derivatives at the University of Chicago's Graduate School of Business. She is the author of: Credit Derivatives & Synthetic Structures (John Wiley & Sons, 1998, 2001), Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, 2008).

Janet Tavakoli's book on the global financial meltdown is Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street (Wiley 2009).

Clients of Tavakoli Structured Finance have the benefit of proprietary consultation, which is not available in any other paid or public forum. Clients also commission proprietary research and analysis.

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