The University of Cape Town invites you to an inaugural lecture by Prof Phillip de Jager

Topic: The Numbers We Trust – Unintended Consequences of the Interconnectedness Between Money, Accounting, and Banking

At the heart of Finance lies the concept of money, particularly fiat money, which predominantly exists as bank deposits. This system is sustained by public trust; a trust often anchored in perceptions of institutional strength. Banks are typically assessed through their capital and capital ratios, yet these are not objective truths but depend on accounting. Capital, defined as the difference between a bank’s assets and liabilities, serves as a proxy for solvency. Under the Basel Capital Accords, capital adequacy is evaluated through ratios comparing capital to risk-weighted assets or total assets. The rationale is straightforward: institutions with greater risk exposure should maintain more substantial buffers. However, this logic presumes that accounting accurately reflects economic reality. What if it does not?

This concern became especially pressing during the Global Financial Crisis. Critics argued that fair value accounting intensified the downturn, while others noted that recognising unrealised gains as income may have encouraged excessive payouts, which implies more fragile banks (taxing any unrealised gains would make the situation much worse). Basel III responded with stricter capital requirements, yet also revised the definition of capital. This raises a fundamental question: does such redefinition advance the goal of “more and better” capital, or obscure it? The crisis further revealed that banks often delayed provisioning for impaired loans, reinforcing procyclical lending. In response, IFRS 9 introduced forward-looking provisions, requiring earlier and more comprehensive recognition of potential losses. While this may reduce cyclicality, it also expands managerial discretion in reporting. These developments underscore a critical point: accounting in banking is not a passive reflection of reality; it actively shapes it. Regulators and scholars must remain attentive to its influence.

Date: Tuesday, 4 November 2025

Time: 17:00 SAST

Venue: Mafeje Room, Bremner Building, Middle Campus