Regulators take aim at unrealised derivatives profits

Accounting changes promoting more fair-value reporting are forcing supervisors to consider radical restrictions on the way banks use profits.

It became a common complaint during the crisis: banks used the vast paper profits created by an asset bubble to pay dividends, bonuses and fund share buy-backs, leaving them weak when the bubble burst.

Now, faced with accounting changes that would result in more financial instruments being reported at fair value through the income statement – meaning changes in value would appear as profits or losses – regulators have been quietly discussing radical new rules that would separate profits into