Step in the right direction but still more work to be done by Edward L. Yingling, ABA president and CEO
“The American Bankers Association welcomes the Financial Accounting Standards Board’s new guidance on mark-to-market accounting and impairment rules. We have worked for over a year to educate policymakers and stakeholders about the destructive effects of mark-to-market accounting for banks.
“ABA recognizes the improvements made regarding accounting for debt securities that are impaired. Under this new guidance, impairment reflected in earnings will be more closely linked with actual credit losses rather than market losses. This will help provide a more realistic picture of losses.
“Although the FASB’s clarifications on estimating market values in illiquid markets should help improve consistency in the application of the existing rules, we continue to believe that the rules are resulting in downward biases in market values.
“The new FSPs represent a step in the right direction, but we need to make greater use of economic values rather than market values. It is our hope that FASB will work expeditiously in the coming months to more fully address the lack of relevance and reliability of mark-to-market accounting for traditional banking activities.
“We have long argued that fair value accounting should only be used where it is relevant to the business model, such as businesses that are based on short-term trading activity. Traditional banking typically involves accepting deposits and making loans rather than active buying and selling. For the activities that are the bread and butter of the banking industry, mark-to-market simply does not fit the business model.”
D.C.