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ABA Calls for Further Changes to FASB Guidelines Around Held to Maturity Securities

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Following the publication of the Financial Accounting Standards Board’s (FASB) final guidelines for mark to market accounting and impairment earlier this week, the American Bankers Association (ABA) has raised concerns about the need for clarification around securities classified as “held to maturity”. Although the association commends the work that has been done by the FASB, it indicates that it is disappointed that the revised rules still require market losses to be recorded for “held to maturity” securities.

The FASB voted this week to approve new guidance that will provide clarification in estimating market values in illiquid markets, thus allowing more leeway for firms to value their assets based on internal models.

Edward Yingling, president and CEO of ABA, reckons the guidance will improve information for investors by providing more accurate estimates of market values. “We are pleased that FASB has now taken steps to improve the accounting for other than temporary impairment, which is generally agreed to have been problematic for many years’ earnings. Requiring that credit losses be reported in earnings provides a more realistic picture of losses,” he explains.

ABA has been campaigning for these changes to be made since March 2008, along with other lobbyists and politicians. The guidance will mean that impairment that is reflected in earnings will be more closely linked with credit losses, rather than market losses, says Yingling.

However, the association reckons that “held to maturity” securities should be subject to the same rules and is concerned about their exposure to market volatility. “To prevent further confusion as to the nature of these losses, it will be important for FASB to consider this during the next phase of its project on financial instruments,” contends Yingling.

The new rules have also come under fire from other quarters of the industry, but for the opposite reason. Some feard that the new rules will interfere with US Treasury Secretary Timothy Geithner’s plan to remove distressed assets from bank balance sheets by discouraging financial institutions from disposing of these assets.

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