Are accounting standard setters in danger of letting the tail wag the dog? In February, Hans Hoogervorst, the incoming chairman of the International Accounting Standards Board, argued that “financial stability” should not be a direct objective of reforming accounting standards, during a speech at a conference organized by the European Commission. Transparency, he argued, should be the appropriate goal of accounting standards, noting that transparency will often facilitate financial stability. Let bank regulators use the many other tools at their disposal to directly encourage financial stability, he stated.
In that speech, Hoogervorst focused on one of the most profound challenges ...