May 2010

'Fair Value' Proposal Could Cost Banks

From the Wall Street Journal.

The Financial Accounting Standards Board proposed a requirement that banks use market values for loans on their books, a controversial move that could cause steep declines in the overall book value of some banks.

If the rule-making panel for accounting procedures approves the change, U.S. banks would have to adjust the value of their loan portfolios to the ups and downs of the market, instead of the longstanding practice of using adjusted original cost.

Using original cost "is kind of out-of-date," said Robert Herz, FASB's chairman. "From a balance-sheet perspective, a lot of people want to see what things are actually worth now."

Banks have long opposed any shift to so-called "fair-value" accounting of loans. Most bank balance sheets are packed with loans held at their original cost. Under the FASB proposal announced Wednesday, both the fair value of a company's loans and their amortized original cost would have to be shown on the balance sheet.

Read more.

Leave a comment


Contact

Blackman Kallick
10 South Riverside Plaza
9th Floor
Chicago, IL 60606-3770

p 312-207-1040
f 312-207-1066
info@BlackmanKallick.com

Get Directions

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.