ABA Welcomes FASB Guidance on Mark-to-Market Accounting and Impairment Rules

WASHINGTON – The American Bankers Association commends the Financial Accounting Standards Board today for finally offering new guidance on mark-to-market accounting and impairment.  ABA expressed concern however, that FASB has not done enough to fully repair the accounting rules for securities classified as “held to maturity.”

The FASB voted this morning to approve new guidance that will provide much needed clarification in estimating market values in illiquid markets. This guidance will allow banks and their auditors to use judgment when valuing illiquid assets that are required to be marked down to market prices under current accounting rules.

“Today’s decision should improve information for investors by providing more accurate estimates of market values,” said Edward Yingling, president and CEO of ABA.

ABA has for years warned of the pro-cyclical nature of mark-to-market accounting and has pushed for immediate repairs to this rule since March 2008.

FASB also voted this morning to improve the accounting for debt securities that are required to be classified as “impaired.” Under the new guidance, impairment that is reflected in earnings will be more closely linked with actual credit losses –rather than market losses. 

“We are pleased that FASB has now taken steps to improve the accounting for Other Than Temporary Impairment, which is generally agreed to have been problematic for many years’ earnings,” said Yingling.  “Requiring that credit losses be reported in earnings provides a more realistic picture of losses.

ABA is disappointed that FASB is still requiring market losses to be recorded for “held to maturity” securities, which should never be subject to market volatility. “To prevent further confusion as to the nature of these losses, it will be important for FASB to consider this during the next phase of its project on financial instruments,” said Yingling.