Accounting standard setters are prepared to issue new rules that could have profound effects, not just on how assets and liabilities get valued but on how financial services companies do business in the future.
The Financial Accounting Standards Board wants to vastly expand the use of mark-to-market accounting. In a draft ruling scheduled for release late Wednesday or Thursday, the FASB is expected to propose that banks value unfunded loan commitments and loans they plan to hold to maturity in the same way that they currently value loans they intend to sell.
The expected proposal would be "the biggest accounting event we have ever seen," said Donna Fisher, a senior vice president with the American Bankers Association.
If approved, she said, the new rule could alter the banking landscape by steering the industry away from products with greater potential for volatility in their market price and in their impact on the numbers in banks' financial statements. For instance, banks might decide to scale back issuance of 30-year, fixed-rate mortgages. Instead they might push products with shorter maturities or variable rates, which theoretically would have less price volatility in the markets because the duration or interest rate risks have been reduced.
The banking lobby has strenuously opposed efforts to broaden the implementation of mark-to-market accounting, arguing that the value of assets that banks are holding for the long haul should not be subject to the vagaries of the markets.
"We've had discussions with them [the FASB] for 20 years now about how accounting should follow the business model, so that if you're buying and selling loans you should mark them to market, but if you're not, having the swings in market value flowing through to your financial statements is misleading," Fisher said.
FASB officials on Wednesday were attending the final portion of a two-day trustee meeting and were not available to comment on the contents of the proposal.
This story has been reprinted with permission from American Banker.