Editing Moral hazard (section)

=== Incentives to moral hazard in accounting rules ===
A 2017 report by the [[Basel Committee on Banking Supervision]],<ref>{{cite web|url=https://www.bis.org/bcbs/publ/wp31.pdf|title=BCBS, The interplay of accounting and regulation and its impact on bank behaviour, 2017|work=Basel Committee on Banking Supervision}}</ref> an international regulator for the banking sector, noted that the accounting rules ([[IFRS]] # 9 and 13 in particular) leave entities significant discretion in determining financial instrument fair value and identified this discretion as a potential source of moral hazard: "The evidence consistent with accounting discretion as contributing to moral hazard behavior indicates that (additional) prudential valuation requirements may be justified."

Banking regulators have taken actions to limit discretion and reduce [[valuation risk]], i.e. the risk to banks' balance sheets arising from financial instrument valuation uncertainties. A row of regulatory documents has been issued, providing detailed prudential requirements that have many points of contact with the accounting rules and have the indirect effect of curbing the incentives for moral hazard by limiting the discretion left to banks in valuating financial instruments.<ref>{{cite web|url= https://www.bis.org/publ/bcbs189.pdf|title=BCBS, Basel III: A global regulatory framework for more resilient banks and banking systems, 2010|work=Basel Committee on Banking Supervision}}</ref><ref>{{cite web|url=https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32013R0575&from=en|title=Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012|work=Capital Requirements Regulation (CRR)}}</ref><ref>{{cite web|url=https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32019R0876|title=Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit|work=Capital Requirements Regulation 2 (CRR2)}}</ref><ref>{{cite web|url=https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016R0101&from=EN|title=Commission Delegated Regulation (EU) 2016/101 of 26 October 2015 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards for prudent valuation under Article 105(14)|work=EU Commission Regulation}}</ref><ref>{{cite web|url=https://eba.europa.eu/sites/default/documents/files/documents/10180/642449/1d93ef17-d7c5-47a6-bdbc-cfdb2cf1d072/EBA-RTS-2014-06%20RTS%20on%20Prudent%20Valuation.pdf|title=EBA final draft Regulatory Technical Standards on prudent valuation under Article 105(14) of Regulation (EU) No 575/2013 (Capital Requirements Regulation — CRR)|work=European Banking Authority}}</ref><ref>{{cite web|url=https://eba.europa.eu/regulation-and-policy/market-risk/draft-technical-standards-on-the-ima-under-the-frtb|title=EBA final draft Regulatory Technical Standards on criteria for assessing the modellability of risk factors under the Internal Model Approach (IMA) under Article 325be(3) of Regulation (EU) No 575/2013 (revised Capital Requirements Regulation – CRR2|work=European Banking Authority|date=June 27, 2019}}</ref><ref>{{cite web|url=https://eba.europa.eu/sites/default/documents/files/document_library/EBA-RTS-2020-02%20Final%20draft%20RTS%20on%20Backtesting%20and%20PLA%20requirements.pdf|title=EBA final draft Regulatory Technical Standards on Back-testing requirements and Profit and Loss attribution requirements under Article 325 bf(9) and 325bg (4) of Regulation(EU) No575/2013(revised Capital Requirements Regulation - CRR2|work=European Banking Authority}}</ref>