FASB Changes Could Have Huge Impact on Banks

From CFO.com

The Financial Accounting Standards Board's new exposure draft on accounting for financial instruments, if adopted, could have adverse consequences for commercial banks, according to lobbyists and bank CFOs who are assessing its ramifications. Almost immediately after the proposal was published last Thursday, bankers began questioning its logic, particularly the requirement that even plain-vanilla loans held for collection be marked to market. Bankers say the ripple effects are numerous and include damping origination of long-term, variable-rate loans; spooking bank investors; and increasing procyclicality in the financial system.

"This is really a jaw-dropping proposal," says Donna Fisher, senior vice president of tax and accounting at the American Bankers Association.


The proposed accounting changes, which would take effect in 2013 for banks with assets of more than $1 billion, would force companies to use market prices to value almost all financial instruments, including loans to corporations and consumer loans like credit-card debt, and record any changes on the balance sheet. That's a significant departure from current accounting practice for banks, which record held-to-maturity loans on the balance sheet at amortized, or historical, cost. The changes to fair value will not flow to net income, FASB says

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