FASB Looks to Expand Mark-To-Market Rules
Accounting-rule makers are considering expanding the use of mark-to-market accounting, a move that is likely to be strongly opposed by banks because it could make their earnings more volatile and potentially force them to take big losses.
Many financial assets already must be marked to market, meaning their value is pegged to the ups and downs of the market. The new proposal being weighed by the Financial Accounting Standards Board would apply mark-to-market rules to all financial instruments, including loans, which make up a big chunk of banks' balance sheets and typically don't have to be marked to market.
FASB discussed the plan last month and is slated to do so again Thursday, though a formal proposal from the board on the issue isn't expected until late this year or early in 2010.
"It's a controversial idea and there's an awful lot of process ahead," said FASB spokesman Neal McGarity. "We're technically not even at square one yet."
The move would be intended to make a company's true financial condition clearer to investors and other users of financial statements, Mr. McGarity said.
But the banking industry, which successfully pushed to get the rules eased earlier this year, is likely to oppose such a change. Banks contend the mark-to-market rules unfairly punished them by forcing them to take big write-downs when their investments lost value in the market even though the market downturn was only temporary.
FASB softened the application of its mark-to-market rules earlier this year after complaints from banks and members of Congress -- a move that has boosted some banks' earnings and led mark-to-market supporters to allege that the board had caved to political pressure.
But Mr. McGarity said that the latest, tougher move isn't a reaction to that criticism, and that FASB had been discussing an expansion of the rules long before that.
If enacted, the move could cause banks' asset levels, and thus their book values, to fluctuate as assets that are now marked to market gain or lose value. In some cases, those gains or losses would count as part of net income; in other cases, they'd go into "other comprehensive income," a catch-all for various types of gains and losses that don't immediately filter into earnings.
FASB is working with the International Accounting Standards Board on the issue. The two boards plan to hold public roundtables next month.
Banks are already gearing up to oppose an expansion of mark-to-market. In a letter last week to FASB and IASB, the American Bankers Association said it was "deeply concerned" about the direction the two boards were taking on the matter. |
