Accounting overstates banks’ health: IMF paper

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Banks' balance sheets offer a distorted view of their financial health, a new paper from the International Monetary Fund posits.

The research shows that distressed banks use discretion in the classification of mortgage-backed securities to inflate their books. The analysis also finds that share prices of banks with large exposures to mortgage-backed securities also react favourably to recent changes in accounting rules that relax fair-value accounting and that these banks provision less for bad

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