Editor's page

This year is going to be a big year for the banking world and this opening issue of Balance Sheet reflects the issues which are going to be making the running. In particular we concentrate on the bombshell of the proposals which would change the way that financial instruments are shown in the financial reporting documents of banks and other similar organisations. The battle lines are drawn. We provide the arguments – from all sides.

But first we begin with some wise and prescient advice from Bill Robinson,our regular columnist from the world of economics. He noticed that alongside the prolonged fall in long-term interest rates which has characterised the last ten years there has been a sharp switch from equity to bond finance. Theoretically there is no reason why lower interest rates should bring about a switch from equity to debt. You will have to read his argument to discover why and then take his advice on what this means for corporate strategies.

With this issue we also welcome a new banking correspondent. Richard Cookson,who has provided so much penetrating analysis for us and The Economist in recent years, has decided to practise what he used to preach, and has joined CSFB. In his place Caroline Merrell, banking correspondent of The Timesin London, eases herself in with a penetrating analysis of risk in the banking world. From the Californian utilities crisis to the latest from the Basel rule book there is, as she points out, no such thing as risk-free lending, though banks always seem surprised by this. Will the latest edict from Basel prove to be "a shock absorber for the whole economy"? Read Merrell's opening column and find out.

Then we turn to a central issue in the world of asset and liability management. Simon Page and Mark Winter from Barclays Portfolio Management talk us through a case study of a transaction they created last year to shed credit risk on a particular branded portfolio the bank held. It is a fascinating account of how they went about it and an assessment of the consequences for the world of ALM transactions.

Next Eamonn Rice of Arthur Andersen assesses the health of insurance companies in a provocatively entitled piece called: "The future of the insurance market – do insurers need crystal balls?" He looks at how companies have responded to the challenge of globalisation and assesses who will be the future winners, and who the future losers.

Then, taking a deep breath, we reach the heart of this issue of Balance Sheet. The fat volume of proposals which aim to bring accounting sense to the world of financial instruments has predictably produced both howls of protest and shouts of "about time too". Our special coverage is aimed at providing readers with a broad range of views which will help bring clarity to the future arguments as the proposals progress, after suitable comment, towards reality. The document, "Financial instruments and similar items", has been published on a global basis by a joint working group set up by the leading accounting standards-setting bodies around the world.

So it is appropriate that the first to provide comment is David Damant. He spent 14 years on the board of the International Accounting Standards Committee and is a past president of the European Federation of Financial Analysts Societies. He takes the view that politics will force the proposals to become the rules and he assesses how the concept of fair value will change the shape of the balance-sheet for ever. Then Paul Ebling has his say. Paul is a project director at the UK Accounting Standards Board and was part of the joint working group which proposed the new rules. He provides a guide to the thinking behind the rules and weighs up the arguments on both sides. As you might expect, he argues that, despite the volatility which this will bring to banking figures,they should become the hard and fast rules.

Then Paul Chisnall argues the corner on behalf of the banking community. He is Director of the British Bankers Association. In detail he delineates the arguments against the proposals and suggests that they should be withdrawn and,instead, a new body formed to work with the banking industry to produce improvements in financial reporting. And finally, to provide readers with both a flavour of the rules and the nitty-gritty, we publish an extract from the proposals detailing the basis for their conclusions on disclosure in banks'income statements.

From there we move back to the how of banking rather than the why. Paul Van der Maas, managing director and head of derivatives, Europe, with Bank of America, provides a guide to innovative credit derivative and securitisation usage with a particular emphasis on case study explanation.

The other ingredient which adds value to an organisation is its staff. Andy Wright of international recruitment specialists, Robert Walters, introduces the latest global salary survey of asset and liability management positions and suggests that the recent growth in the discipline is likely to accelerate around the world.

And finally we report on the issues dealt with at the annual conference of the UK Asset and Liability Management Association. It looked at issues as diverse as the future of liquidity and the whole question of who is benefiting from financial change. We carry, as you would expect, a full report. Financial change affects all of us. And Balance Sheet, as this issue exemplifies,provides the navigational aids for the way ahead.

Robert BruceEditor