Accounting standard-setters issued new rules Wednesday that could have profound effects, not just on how assets and liabilities get valued but on how banks do business.
The Financial Accounting Standards Board wants to vastly expand the use of mark-to-market accounting. In a draft ruling posted on its Web site late Wednesday, the FASB proposed that banks value unfunded loan commitments and loans they plan to hold to maturity in the same way they currently value loans they intend to sell. The rule also would change the way deposits are valued.
The proposal would be "the biggest accounting event we have ever seen," said Donna Fisher, a senior vice president with the American Bankers Association.
If approved, she said, the new rule could alter the banking landscape by steering the industry away from products with greater potential for volatility in their market price and in their impact on the numbers in banks' financial statements. For instance, banks might decide to scale back issuance of 30-year, fixed-rate mortgages. Instead they might push products with shorter maturities or variable rates, which theoretically would have less price volatility in the markets because the duration or interest rate risks have been reduced.
The industry is bracing for change at the conclusion of a drawn-out debate that heated up dramatically as the financial crisis raised concerns on both sides of the argument, calling into question whether banks' stated loan values could be trusted and whether it is wise to peg loan values to markets proven vulnerable to wild mood changes.
The bank lobby has strenuously opposed efforts to broaden the implementation of mark-to-market accounting, arguing that the value of assets that banks are holding for the long haul should not be subject to the vagaries of the markets.
"We've had discussions with them [the FASB] for 20 years now about how accounting should follow the business model, so that if you're buying and selling loans you should mark them to market, but if you're not, having the swings in market value flowing through to your financial statements is misleading," Fisher said.