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A proposed new accounting rule could force bank loan-loss reserves to be increased by 50%, says...

A proposed new accounting rule could force bank loan-loss reserves to be increased by 50%, says FASB head Leslie Seidman, after taking comment from lenders. Even though it could be years before the rule takes effect, profits could begin taking a hit right away as banks stop cutting loss reserves in anticipation.
Comments (10)
  • Tack
    , contributor
    Comments (12958) | Send Message
     
    Basel III... mandated much higher loss reserves.... etc.

     

    Let's just stop pussyfooting around, and dictate to banks that they must stuff all cash into mattresses.

     

    Oh, but, of course, let's lament the anemic economic growth, tepid expansion of credit, and complain about bank management, too.
    20 Dec 2012, 03:47 PM Reply Like
  • RM13
    , contributor
    Comments (719) | Send Message
     
    Right on!! And lets tax the hell out of anyone making any money so everyone will be on the lookout for any tax loophole they can find.

     

    So instead of creating a system for unwinding TBTF when they do fail, let's slap them on the butt for taking any economic risk.
    20 Dec 2012, 04:44 PM Reply Like
  • Tom Armistead
    , contributor
    Comments (5237) | Send Message
     
    Current accounting treatment is pro-cyclical. When times are good, banks reduce reserves and claim to be making money hand over fist. So they shovel more of it out the door.

     

    Then when reality sets in they jack up reserves, claim to be losing money hand over fist, stop lending, and tank the economy.

     

    Why not require the banks to set up 5% loan loss reserves when they make the loans? Then they can relieve the reserve when they can prove that they're getting paid better than that.
    20 Dec 2012, 05:51 PM Reply Like
  • Tack
    , contributor
    Comments (12958) | Send Message
     
    Because if you move 5% of the asset value out of owners equity and into a liability (deferred asset) account, you have wiped out a couple years of profits at today's rates. If banks expected to lose 5% of their loans, they wouldn't be in business.

     

    We have become so risk averse and anti-bank in the post-2008 period that we're intent on slapping on ever more regulation and safety nets at the expense of building the economy. Then, ironically, we complain about those same banks not lending enough or having too-tough credit standards.

     

    It's just not possible to have no risk and growth, too. Moderate risk is preferable to hamstringing the entire economy.
    20 Dec 2012, 06:42 PM Reply Like
  • Tom Armistead
    , contributor
    Comments (5237) | Send Message
     
    Tack,

     

    We can stop slapping the banks with more regulation and more safety nets when they demonstrate an ability, a willingness and an active desire to perform their role as financial intermediaries, rather than operating as parasites on the real economy.

     

    None of the big five are anywhere near that.
    20 Dec 2012, 06:52 PM Reply Like
  • Tack
    , contributor
    Comments (12958) | Send Message
     
    Tom:

     

    This all reminds me of that expression: "The beatings will stop when morale improves."
    20 Dec 2012, 11:22 PM Reply Like
  • Tom Armistead
    , contributor
    Comments (5237) | Send Message
     
    Tack,

     

    Try "The beatings will stop when compliance is secured."

     

    These bankers are very slow to figure it out, that what is actually desired is for them to serve the real economy. It's so much quicker and easier to manipulate Libor and profit by trading in derivatives, while the rest of the population suffers. Much faster and more efficient to issue massive quantities of bogus mortgages and pass them down the line to unsuspecting pensions and mutual funds.

     

    Even massive legal bills as seen for Bank of America are a minor annoyance, it's still better to continue their sleazeball behavior.

     

    I have previously (and correctly) identified the big banks as a rogue industry. Here's a link:

     

    http://seekingalpha.co...

     

    Just today CNBC is asking whether UBS has an outlaw culture. I previously identified CS as a rogue bank. So much for Switzerland, that land of fiscal probity.

     

    Our own US banks are well in step with their European peers, if not several steps ahead.
    21 Dec 2012, 06:48 AM Reply Like
  • RM13
    , contributor
    Comments (719) | Send Message
     
    Tom,

     

    You can't issue a statement like 'Banks should do what's good for economy and country' and expect them to fall in line. Life doesn't work that way, except under Stalin's guns and in fairy tales.

     

    The key is to issue and enforce regulations that promote good behavior. United States has not been able to do so in its remote history (early 1900s) and more recently. Nothing that has happened since 2008 indicates that this has changes.
    21 Dec 2012, 09:11 AM Reply Like
  • TGC004
    , contributor
    Comments (422) | Send Message
     
    It is called moving from an "incurred loss" model to an "expected loss" model. Under the incurred loss model, banks write down or reserve for loans when it becomes apparent that a loss has been incurred, generally when the loan stops performing according to the terms of the contract.

     

    Under an expected loss model, a bank would be expected to book a loss whenever it makes a loan based on the assumption that some types of loans incur losses. So you have "day one" losses for each loan a bank writes under the assumption that some loans will go bad and others will perform. This results in earlier recognition of loan losses.

     

    The expected loss model is at odds with how companies account for other types of losses, and is generally messed up in my view.

     

    This whole thing is being driven by the Europeans.
    20 Dec 2012, 08:35 PM Reply Like
  • june1234
    , contributor
    Comments (2548) | Send Message
     
    I wont worry too much about bank profits Fed has committed to $40 billion a month of MBS purchases from banks. Bank profits for BAC and Citi should do very well. A 10 year old generate earnings with that plan
    21 Dec 2012, 04:40 AM Reply Like
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