FASB gives firms more leeway in valuing assets
10 minutes ago
By MARCY GORDON
AP Business Writer
(AP:WASHINGTON) The board that sets U.S. accounting standards on Thursday gave companies more leeway when valuing assets, providing a potential boost to battered banks' balance sheets.
The independent Financial Accounting Standards Board voted to adopt new guidelines under the so-called mark-to-market accounting rules, which require companies to value assets at prices reflecting current market conditions. The board was meeting at its headquarters in Norwalk, Conn.
The changes will allow the assets to be valued at what they would go for in an "orderly" sale, as opposed to a forced or distressed sale. The new guidelines will apply to the second quarter that began this month.
The mark-to-market rules have forced banks to take steep write-downs on some assets, especially securities tied to high-risk subprime mortgages, as the industry has reeled from the housing market slump and banks have foundered and failed. The banking industry and lawmakers of both parties have been pushing for the rules to be relaxed.
An estimated $2 trillion in soured assets is gumming up banks' books.
In an ironic twist, the new leeway for banks could undercut the government's new financial rescue program in which it is joining with private investors to buy up about $500 billion in toxic assets from banks, some experts say.
The fear is that companies will use the leeway to boost the value of the assets on their books to "unrealistic levels," Robert Willens, an expert on tax and accounting issues for Wall Street clients, told The Associated Press last week.
"The FASB's relaxation of these rules might come at the most inopportune time," he said.
In the short run, banks would benefit by raising the value of the assets. But higher values could drive away prospective private investors _ who don't like to overpay, even though the government will absorb most of the risk.
If the assets remain on banks' books, they may continue to be reluctant to lend as they fret over the assets' future performance. That could work against the purpose of the government's program: to break the logjam in lending and get the economy pumping again.
"Banks need to have flexibility" in valuing assets but the fair market rule shouldn't be scrapped, Sheila Bair, the chairman of the Federal Deposit Insurance Corp., told a gathering of bank executives Wednesday. "There needs to be integrity in those bank balance sheets."
Proponents of the mark-to-market rule argue that suspending or scrapping it _ as banking executives urged last fall _ would weaken transparency in companies' financial statements, hurting investors and the capital markets.
But critics say the rule mandates onerous write-downs and saps investor confidence in banks, not reflecting the true value of soured, mortgage-linked assets and the higher prices they may fetch in the future as the market recovers.
At a hearing last month, a House panel wrung a pledge from FASB Chairman Robert Herz to try to issue guidelines in three weeks that would relax the mark-to-market rule. The head of the House Financial Services subcommittee, Rep. Paul Kanjorski, D-Pa., had held out the threat of legislation to pressure the standard-setting board to take the steps.
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