The Financial Accounting Standards Board in Norwalk is seeking public comment on a proposal that would require banks to report the fair value of loans on their books and accelerate recognition of credit losses, Bloomberg News reports.
The proposal, which also seeks to simplify accounting of hedges, was released for comment through Sept. 30, FASB said in a public statement. The panel, which sets U.S. accounting standards, estimated that the rules would go into effect in 2013, according to a summary of the proposal.
Companies would have to report both fair value and amortized cost of financial assets held for collection of cash under the new rules, FASB said. Changes in fair value would in most cases be recognized in other comprehensive income, not net income, the panel said.
“The proposal would impact the reporting by financial institutions and all other entities that have financial instruments as the goal of greater transparency in financial statements is pursued,” FASB Chairman Robert Herz said in the statement. “FASB will ensure that it obtains and considers a broad range of input on this important proposal.”
Non-public companies with less than $1 billion in consolidated total assets would be allowed a four-year deferral past the effective date to make the changes, FASB said. Some financial instruments, including pension obligations and leases, would be exempt from the changes.
“FASB’s proposal for mark-to-market accounting presents significant problems, not only for banks, but also the general economy,” Edward Yingling, chief executive officer of the American Bankers Association, said in a statement. “The proposal would greatly undermine the availability of credit by making it difficult to make many long-term loans, the value of which, even if performing perfectly, would likely be reduced on the day a loan is made.”
