The article analyzes the dichotomy between banks' financial statements and prudential
regulatory requirements. While financial statements should be true and fair, prudential
regulatory requirements focus on banks' soundness, riskiness and risk management practices.
The lessons learned from the 2008 crisis have brought about significant changes in
both bank accounting and banking regulation, which have led to a major transformation
in both areas. Their development is characterized by a number of contradictions, differences
and mutual interactions. In this article, we analyze three areas of European bank
accounting and regulation that were of particular relevance to the 2008 crisis and
the subsequent regulatory changes, and which are crucial for both today's bank accounting
and banking regulation. These are as follows: the differences in the application of
fair valuation of financial instruments; the issue of impairment accounting; and the
differences in equity and regulatory own funds. We have identified different patterns
of interaction across the three areas and have identified a number of areas for further
research.
