If your proposal is implemented, a 1% decline in the value of our bond portfolio could result in a 3% decline in our reported capital.

At our current position, this would equate to a decrease of approximately $70,000 in our legal lending limit. This could significantly hinder our ability to make or renew existing credits.

Hurting Long-Term Market

Our only defense against this variability in lending limits would be to make investment decisions that minimize the variance between cost and market values. This means shifting to shorter-term or variable-rate securities, or both.

If all financial institutions are forced into this position, it will damage the market for long-term, fixed-rate securities, including U.S. Treasury bonds.

The bond market is too volatile to present a reliable view of a company's financial position. Investors may obtain adequate market-value information through separate disclosures, but to actually record the fluctuations of the market in the balance sheet presents a distorted view of the company's stability.

Straying from Fundamentals

To require a change in accounting procedures of this magnitude will result in a major deviance from the fundamentals of investment and lending management used by bankers.

The resultant effects on the long-term bond market and on bankers' abilities to make or renew loans may be counterproductive to the purpose of our industry.

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