The four federal bank and thrift regulatory agencies are considering whether to permit current recognition for regulatory purposes of deferred tax assets. The Financial Accounting Standards Board had issued Statement of Financial Accounting Standards 109 in February, which permits such recognition under generally accepted accounting principles. Following are excerpts from the comment letter by the American Bankers Association to the Federal Financial Institutions Examination Council, through which the regulators set accounting policy. (For story on FAS 109, see The Mortgage Marketplace, Oct. 12, page 2.)
While the [Federal Financial Institutions Examination Council] has proposed several alternatives to the treatment of deferred tax assets. the agency staff has indicated its preference for the existing OCC and FDIC rule of limiting the recognition of deferred tax assets to the amount of taxes previously paid that can be recovered through carrybacks. The basis of this staff position appears to be the uncertainty that a banking institution might generate sufficient future taxable income to realize the net deferred tax assets. The uncertainty about this asset seems no greater than the uncertainty that banks will be repaid on outstanding loans. Indeed, FAS 109 requires banks to establish an offsetting valuation allowance, which reduces the asset to the extent of the uncertainty about realization, analogous to the reserve for loan losses, which reflects the uncertainty about some of the assets in the loan portfolio.