WASHINGTON - A prominent member of the House Banking Committee criticized a draft American Institute of Certified Public Accountants proposal that would change the way banks account for loan loss reserves.
Rep. Marge Roukema, R-N.J., who heads the financial institutions subcommittee, asked the Securities and Exchange Commission and the Financial Accounting Standards Board on Thursday to comment on the draft, which was detailed in an American Banker story Monday.
Today, federal bank and thrift regulators are expected to blast the plan in letters to the accounting trade group, which is expected to adopt a final position July 26.
Among other things, the proposal suggested that banks should not be allowed to hold unallocated reserves, and should be permitted to add to reserve accounts only after documenting default or near default for a specific loan or portions of a loan pool.
"I am particularly concerned that the proposal, if adopted by the FASB as standard accounting practice, would hinder the ability of bank management, in cooperation with its primary federal regulator, to set an appropriate level for loan loss reserves," Rep. Roukema wrote in letters to SEC Chairman Arthur Levitt and FASB Chairman Edmund L. Jenkins.
"At this stage of the business cycle," Rep. Roukema warned, "it would not be prudent to limit in any way the ability of a financial institution to appropriately reserve for anticipated losses in its loan portfolio."
Both the SEC and FASB have indicated that they support positions similar to those expressed in the accounting group's draft.