Toward Greater Bank Transparency: FASB Considering Expanded Mark-to-Market Rules

Aug.14.09 | About: SPDR S&P (KBE)

The FASB, or Financial Accounting Standards Board, is considering expanding its mark-to-market rules with loans instead of only securities. I bet you thought this issue was dead n April when Congress forced the FASB to relax on this rule for securities, but this is an entirely new issue as they want loans priced to market instead of just securities. This is a major problem for banks, which oppose this rule.

The banks blame the mark-to-market rules for the financial crisis itself, when in fact it was their own bad decisions that caused the problem, not the rule, which is absurd. However, I am not sure about this new proposed rule as it could cause a major problem within banks themselves. I am not sure what the FASB is really thinking, but it is safe to assume that they think that there is a problem with the way loans are currently valued.

I would more than likely have to agree with them, but still there has to be a happy medium between mark-to-market versus the current mark-to-dreamland that we currently have. If you haven’t noticed ever since the relaxing of mark-to-market rules went in place earnings for all banks have been fantastic. They simply buried the problem for a future date, but now if these new rules come into play that future date is coming very fast albeit a different problem altogether.

It has always been my opinion that when an institution is against something then it is because they know there is a problem. Just like when they support something you know they will benefit from it in some way. Therefore, go ahead and change the rules, it is AOK in my book as even the FASB said it would give investors a better look at the company and its balance sheet. Frankly, the FASB has problems, like all organizations, but they are a pretty straight group of people and only make changes if they think it will benefit investors.

Clearly, this change will benefit investors as they will then see it is just not toxic securities they need to worry about, but toxic loans on the books as well. In my opinion, accounting has offered banks some pretty neat loopholes and benefits which can make their balance sheet look better than it really is, but that does not benefit investors. This rule change would make us fully informed just how badly ran our banks are and, frankly, burying or using factious accounting does not make the problem go away, it makes it worse.

These new rules will help investors and while they are at it they should have to mark the securities to market so you can see the problems that may exist as they never really went away. Getting rid of shenanigans is a good thing and I cannot see why someone would oppose these new changes, unless they benefit in some way from not making these changes. We should keep an eye on this to see where it goes, it could be a game changer.