FASB Looks to Expand Mark-To-Market Rules - To Be Stronly Opposed by Banks

Discussion in 'Wall St. News' started by ASusilovic, Aug 13, 2009.

  1. Accounting-rule makers are considering expanding the use of mark-to-market accounting, a move that is likely to be strongly opposed by banks because it could make their earnings more volatile and potentially force them to take big losses.

    Many financial assets already must be marked to market, meaning their value is pegged to the ups and downs of the market. The new proposal being weighed by the Financial Accounting Standards Board would apply mark-to-market rules to all financial instruments, including loans, which make up a big chunk of banks' balance sheets and typically don't have to be marked to market.

    FASB discussed the plan last month and is slated to do so again Thursday, though a formal proposal from the board on the issue isn't expected until late this year or early in 2010.

    "It's a controversial idea and there's an awful lot of process ahead," said FASB spokesman Neal McGarity. "We're technically not even at square one yet."

    The move would be intended to make a company's true financial condition clearer to investors and other users of financial statements, Mr. McGarity said.

    But the banking industry, which successfully pushed to get the rules eased earlier this year, is likely to oppose such a change. Banks contend the mark-to-market rules unfairly punished them by forcing them to take big write-downs when their investments lost value in the market even though the market downturn was only temporary.

    FASB softened the application of its mark-to-market rules earlier this year after complaints from banks and members of Congress -- a move that has boosted some banks' earnings and led mark-to-market supporters to allege that the board had caved to political pressure.

    But Mr. McGarity said that the latest, tougher move isn't a reaction to that criticism, and that FASB had been discussing an expansion of the rules long before that.

    If enacted, the move could cause banks' asset levels, and thus their book values, to fluctuate as assets that are now marked to market gain or lose value. In some cases, those gains or losses would count as part of net income; in other cases, they'd go into "other comprehensive income," a catch-all for various types of gains and losses that don't immediately filter into earnings.

    FASB is working with the International Accounting Standards Board on the issue. The two boards plan to hold public roundtables next month.

    Banks are already gearing up to oppose an expansion of mark-to-market. In a letter last week to FASB and IASB, the American Bankers Association said it was "deeply concerned" about the direction the two boards were taking on the matter.

  2. JB3


    Not going to happen.

    The banks really like the current Mark-to-Fantasy accounting better.

    The banks are "deeply concerned" because if they mark to market, it will show most of them are insolvent.
  3. dtan1e


    won't happen since the Fed is the one that initiated this marked to fantasy to begin with
  4. dtan1e


    sounds like Enron, way i feel the whole financial system is rather fragile, a lot of financial books all predicated on marked to fantasy, a little push could get the house of cards to fall, of course the Fed could try to keep printing to hold it off indefinitely, for an individual it be u can keep spending and borrowing indefinitely so long u can get another credit or credit card, in this case, so long as there r no wild spread riots when prices rise through the roofs, the Fed will likely keep printing, there will always be an excuse to print with fancy buzz words like quantitative easing so common people doesn't know nor dare question since hey i been in the financial industry for over 15 years and still doesn't know wtf they mean by quant easing and can only make a common sense guess, sort of like saying if somebody has maxed 10 credits/ credit cards, its quite obvious they have no intention of paying back, so its a miracle that anyone is still buying treasuries
  5. Must be nice to be a bank with the full backing of the US government. The blind leading the blind.
  6. He writes some good stuff, Barry does...
  7. JB3


    Which leads me to the next musing...

    What exactly are accountants doing lately? I mean, with the current Mark-to-Fantasy accounting practices, that's just a nicer way of saying they are legally cooking the books. Is there really a point on having a person adding up fictitious numbers? :p
  8. Daal


    If this happens it will be probably in the 'beginning in 2012' sort of BS
    #10     Aug 14, 2009