NORWALK, Conn.-The Financial Accounting Standards Board last week proposed rules that would extend market value accounting to a new set of holdings, including loans.
The move has been widely criticized by credit unions and banks, who say it could wreak havoc as current rules allow them to report loans at book value as long as they have an intent to hold them.
Marking the loans to market value could require credit unions and banks to take big losses during difficult times, such as now. Credit unions and banks already use market value accounting for investments which have forced them to take huge write-offs even for investments that continue to pay interest and principle.
FASB officials say the changes would bolster investor confidence by requiring the institutions to more quickly recognize their losses. "Investors have told us that it doesn't faithfully represent the underlying economics," said Robert Herz, the chairman of the seven-member board, referring to the existing accounting rule. "The financial crisis reinforced the need for better accounting in this area."
The proposed rules have been issued for a 90-day comment period and would take effect as soon as 2013 for big institutions, and in 2017 for entities with less than $1 billion in assets.
The additional time is intended to give smaller lenders a chance to recover from the financial crisis. If the new rules took effect today, they might force credit unions and banks to take tens of billions of dollars of losses on their commercial real estate loans that they have not yet recognized.
