FASB Gives Banks Room to Revalue Toxic AssetsU.S. accounting rule-makers bowed to congressional and financial industry pressure and will allow more flexibility in valuing toxic assets -- a move expected to boost bank earnings and improve their capital levels as early as the end of the second quarter of 2009.
The Financial Accounting Standards Board's (FASB) five members voted unanimously on Thursday to let banks exercise more judgment in using mark-to-market accounting that has forced billions of dollars in write-downs and been blamed for worsening the recession.
The board vote split 3-2 on backing guidance that would let lenders take smaller losses on impaired assets available for sale, a move critics said would let banks hide the real costs from investors.
The first reaction of improved attitudes among business lobbyists over the changes were dampened after FASB said it declined to let banks presume that all transactions within a market are distressed just because a market for an asset is inactive. One onlooker described the move as one step forward and one step back. The three hours of deliberation before the vote change was seen as an improvement by FASB Chairman Robert Herz.
Board members Marc Siegel and Thomas Linsmeier cast dissenting votes on the guidance for how companies write-down assets that have dropped significantly in value. Seigel said in the meeting that he is afraid that the change will result in fewer impairments being recognized, and won't aide investor confidence in balance sheets.
The changes would take effect in the second quarter for most U.S. financial firms, but early adoption could be allowed for first quarter results.