ABA Banking Journal - August 2010 - (Page 48)
Can FASB’s mark-to-market proposal be stopped?
An interview with Donna Fisher, ABA’s tax and accounting expert
ABABJ: What’s the latest on FASB’s mark-to-market accounting proposal? Donna Fisher: FASB’s proposal to require all financial instruments—including loans—to be marked to market on the balance sheet is out for comment. Comments are due by Sept. 30. Interestingly, the International Accounting Standards Board just adopted its final rule on the same issue. While the IASB rule would mark more securities to market than U.S. banks currently do, the board rejected the idea of marking loans to market. ABABJ: So why is FASB pushing it? DF: They believe that investors want it. One of the main groups of investors that they listen to—the Certified Financial Analyst Institute—is pushing it. But what we’re hearing is that bank investors don’t want it, and some of them are members of the CFA Institute. We’ve brought investors in to meet with ABA’s Accounting Committee. We’ve called some investors individually. We’ve participated in investor calls with hundreds of investors on the line. They’re correctly concerned about the negative effect mark-to-market would have on a bank’s bottom line and how banks would be perceived in the market as a result. ABABJ: Where are bank regulators on this? DF: The U.S. and international regulators agree that loans shouldn’t be marked to market. ABABJ: What will be the consequence if the proposal goes through? DF: This would represent the most significant change to bank accounting we have ever seen and will likely change banking as we know it. Lending products in particular could change dramatically. If you have to mark loans to market and be measured based on it by investors, regulators, and depositors, your products will change to adapt to those new rules. It’s very possible that there would be no more fixed-rate, long-term lending unless you were sure
48 | ABA BANKING JOURNAL | august 2010
you could sell it off. A fixed rate won’t float with the market fluctuations. There’s more interest-rate risk and market volatility related to that, and banks will be expected by many to minimize that volatility. ABABJ: Can anything be done to stop the proposal? DF: The only way we will turn this around is if enough investors write. FASB can’t ignore investor letters. The vote count is currently three board members in favor of the mark-to-market proposal and two against. One board member needs to change his mind for this to go the other way. As important as it is for bank management to write to FASB about this, it’s more important for them to educate their bank’s investors and encourage them to write. ABABJ: Where should they write? DF: Send comments in letter format by email to director@ fasb.org, File Reference No. 1810-100. (Investors without email should send comments to: Technical Director, Financial Accounting Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, CT 06856-5116 File Reference No. 1810-100.) There’s a special page on ABA’s website for directors: www.aba.com/industry+issues/FASB_advocacy.htm. Investors who are directed there will learn about the proposal, how to write to FASB, and more. Donna Fisher is Senior Vice President, Tax and Accounting at ABA. She can be reached at firstname.lastname@example.org.
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