Few accounting changes in recent years have raised so much rancor at community banks as the mark-to-market accounting of assets. Financial Accounting Standard 115 dictates that banks classify their securities portfolios according to how and when management will conduct transactions with them.

Some bankers consider it a new tool for managing their portfolios; others think it adds an unwelcome element of volatility into their earnings and capital disclosures.

But a provision of last year's budget reconciliation act that has attracted little notice, at least until recently, requires bankers to classify their entire asset portfolios in mark-to-marker terms except for assets - that is loans - that they intend to hold till maturity.

This provision, the effective date of which was delayed from Sept. 9 until Oct. 31, appears to have taken many community bankers by surprise, as these letters to Treasury Secretary Lloyd Bentsen indicate.

Since our bank very rarely trades securities and remains in an excellent liquidity position, we had anticipated very little impact from FAS 115 on our financial planning.

Recent pronouncements by the Internal Revenue Service would seem to have greatly expanded the scope of this proposal to include the mortgage portfolios of small community banks that occasionally sell fixed-rate mortgages to the secondary market.

Through the availability of this secondary market, we have been able to expand our mortgage lending well beyond the levels otherwise considered.

If the IRS insists that these loans, which might never be sold, be marked to market, and taxes paid, our strategy will be markedly altered.

I urge you not to apply this new provision to banks until there has been a full discussion.

The statute provides no notice and little support for extending compliance requirements to the nation's community banks.

No one that I have talked to was even aware that this provision was in the budget reconciliation bill.

We will need a board meeting, if not more than one, to address the issues raised by the IRS mark-to-market considerations.

I urge you to use your influence to have the entire issue of mark-to-market accounting for banks revisited.

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