FASB Gives Banks Room to Revalue Toxic Assets

U.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.

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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