A proposed accounting rule change would wipe out almost half of the securities repurchase agreement market, squeezing out a huge source of thrift industry funds, according to a survey by America's Community Bankers.

The trade group quizzed 70 large and midsize thrifts and found that as of Sept. 30 they had $35 billion in repurchase agreements outstanding - about 10% of their total assets.

Forty-seven percent of those repurchase agreements - which financial institutions use to raise short-term and medium-term funds -had maturities of longer than three months. A proposal issued late last year by the Financial Accounting Standards Board would classify as "sales" all repurchase agreements with maturities longer than three months, effectively killing the market for such contracts.

Banks and thrifts had already complained to the accounting board about the proposed rule change. The trade group's study - presented to the FASB this month - was intended to back up those complaints.

"It confirms with empirical information what we had been telling the FASB, which was that these repurchase agreements are important for a number of reasons to the industry," said America's Community Bankers lobbyist Marti Sworobuk, who conducted the survey.

Repurchase agreements, or repos, are contracts to sell and subsequently repurchase securities at a specified date and price.

Institutions now account for the agreements as collateralized borrowings - which means the securities involved can be kept in the "held to maturity" category and do not have to be marked to market. If repos are counted as sales, banks and thrifts would have to mark the securities they sell to market.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.