WASHINGTON (MarketWatch) -- A key lawmaker on Tuesday told bankers he backs a number of efforts sought by the financial industry, including an approach that would allow institutions to recoup losses from controversial accounting rules and legislation that would give the Federal Deposit Insurance Corp. new borrowing authority. House Financial Services Committee Chairman Barney Frank, D-Mass., told bankers at an American Bankers Association conference in Washington that he would support a procedure for banks in some circumstances to recoup losses they have already taken due to controversial mark-to-market accounting rules. Frank said he believed that firms should be able to make the case that they have been forced to take losses on assets with good cash flow that they are holding to maturity and be able to remove those losses from their balance sheet. Mark-to-market rules are an accounting methodology that requires banks and other corporations to assign a value to an asset, such as mortgage securities, credit-card debt or student-loan investments, based on the current market price for either the security or a similar asset. Frank said he would talk to the Securities and Exchange Commission about a rule change regarding retroactive accounting. "They ought to be able to go back and say they took that loss on an asset that is being held to maturity and recoup that loss," Frank told a banker who asked him about retroactive losses. Bankers argue that they have already taken 90% of losses on held-to-maturity assets. Frank's comments come as the Financial Accounting Standards Board, which is overseen by the SEC, plans to vote on new guidance for mark-to-market rules on Thursday. Frank said he wants banks to have discretion and flexibility on how they apply the accounting rules. http://www.marketwatch.com/news/sto...x?guid={D2A8A17D-30E2-4695-8FD4-3F318CCB0BF1} Recoup losses - that´s the new terminology...[/url]
"Frank said he wants banks to have discretion and flexibility on how they apply the accounting rules" Sure why not.. lol
As per Canadian accounting standards, held to maturity securities are on the balance sheet at cost with any unrealized gain/loss amortized over the life of the security. The only unrealized gain/loss recorded in earnings is on held for trading securities. This would alleviate many of the problems the banks are facing in the USA with this respect.
Changing the valuation model won't work for 2 reasons. Many investors will demand that companies still give mark to market numbers for their impaired assets. Secondly, many of these assets might be worth even less than what they are being carried on the books. Just because you are still holding a stock that went form $100 to $0.01 does not mean you have not lost anything. Companies, unless they can demonstrate with certainty that their assets are not impaired, should be held to mark to market accounting standards.
Don't get me wrong, I am completely and 100% for the mark to market accounting rules and don't think they should be changed. However some are calling for a the standard to be scrapped or suspended which I don't agree with. The Canadian style standard might be a nice compromise between the two.
Recouped losses, although fictional would still be a wash because the bank would also have to lose some of their tax credits they are holding. They may even need to pay taxes which they have little cash to do. One thing that would make financials and possibly the market go up is if Barney frank retired.