The saga of high-risk securities instruments as held-to-maturity investments continues, but this time it looks like the banking regulators and the private sector may find a way to settle the issue, but it could take a while. The time-consuming part is the due process of the private-sector standard setters and the regulators' lack of ability to craft language they feel surrenders their authority in this area.
The Financial Accounting Standards Board's Emerging Issues Task Force took a look at the issue one more time May 19 after washing its hands of it after its last meeting March 24. The EITF was urged to discuss the issue by banking industry groups who are up in arms about the implications of the regulators' policy statement on high-risk investments.
In an effort to smooth over regulators' ruffled feathers, the EITF proposed that the following insert be made to the Federal Financial Institutions Examination Council's Interim Revision to the Supervisory Policy Statement on Securities Activities, released April 15.
Following is EITF's proposed language to the regulatory statement: "In the past it has been rare that an institution has been, required to divest of a security that becomes a 'high-risk mortgage security' after acquisition and it is considered remote that divestiture of such securities will be required in the future. Divestiture would only be considered in conjunction with an overall determination of insolvency or safety and soundness concerns with respect to the institution."
If this proposed revision is made by FFIEC, the FASB staff contends that it will consider issuing the announcement that it had originally intended to issue March 24. The FASB announcement would be an amendment to the board's November announcement interpreting FAS 115, Accounting for Certain Investments in Debt and Equity Securities, and would clarify that a mortgage derivative security can be classified as held-to-maturity if: "It is remote that the regulator will require the institution to dispose of the security if it becomes a 'high-risk' mortgage security."
