NEW YORK Bank of America Corp. and KeyCorp have written to accounting rulemakers to encourage them to reject a proposal that would require banks to record loans at market value.
Banks are resisting the change, proposed to the Financial Accounting Standards Board by Goldman Sachs Group Inc., because it would force them to report losses on loans that are bought or sold at a price lower than that at which they were made.
Securities firms such as Goldman are already required to value loans that way, forcing them to include any losses in earnings statements. The Wall Street firms argue that this puts them at a disadvantage to banks such as J.P. Morgan Chase & Co., which has also lobbied FASB not to change the rule now.
Goldman has pressed its case at a time when Wall Street securities firms are losing market share in bond underwriting to commercial banks, which are able to offer more generous lending terms.
Lenders such as Bank of America, which has $354 billion of outstanding loan commitments, argue that the revised rules would cost millions of dollars to enforce, and for little benefit.
We are concerned that the proposed guidance does not consider the cost-benefit of this undertaking, Bank of America senior vice president Randall Shearer wrote in a letter to FASB. He said that determining the fair value of a loan commitment would be extremely difficult because banks generally dont trade these assets.
There are a lot of loans where there just isnt a secondary market, said Thomas McCandless, a banking analyst at CIBC World Markets Inc.
Dina Dublon, chief financial officer at J.P. Morgan, called Goldmans proposal an implementation nightmare.