Refer to Section 13.3 concerning the debate in the U. S. Congress of the Financial Stability Improvement Act.

Required

a. Is this sequence of events most consistent with the public interest theory or the interest group theory of regulation? Explain.

b. Evaluate the extent to which the bankers’ objections to fair value accounting for financial instruments have merit, since fair value accounting may be subject to liquidity pricing, under which fair values are less than value in use.

c. Investor protection groups opposed the original amendment. Evaluate the costs of moving standard setting for financial instruments to the SEC. Is there a possible benefit?