The Financial Accounting Standards Board on Thursday proposed requiring banks to carry derivatives on their balance sheets at fair value.

Derivatives currently are not listed on the balance sheet as separate items. Rather their value is reflected in the value of the items they are hedging.

Under the proposed system, banks would separately record both the value of the derivative and the hedged item. This would allow analysts to determine how reliant a bank is on derivatives.

The American Bankers Association immediately slammed the proposal, saying the rule is flawed. "ABA believes that the proposed accounting rule may impose potentially misleading accounting results on entities that use derivatives to pursue prudent risk management objectives," ABA executive vice president Don Ogilvie said in a prepared statement.

He said the accounting board should instead require banks to report the net economic effect of hedging strategies, rather than having institutions report the value of both the derivative and the hedged item.

Comments are due Oct. 11.

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