FASB softens fair value accounting for US banks

Elizabeth Fournier
THE US accounting regulator has relaxed its fair-value proposals, meaning that banks will be allowed to continue valuing their loans at adjusted historical costs rather than using mark-to-market principles.

US banks welcomed the decision, having feared that a rule change would force them to value loans based on market movements. This can lead to massive writedowns on loans as prices fluctuate, without considering the bank’s business model as a contributing factor to the loans’ long-term performance.

The Financial Accounting Standards Board (FASB) has scaled back the proposal for now, but a final decision won’t be made until June, when FASB plans to present wide-ranging accounting reforms including revenue recognition and the presentation of comprehensive revenue.

FASB is working to align US-specific accounting standards with global standards, but business groups have been lobbying hard to make sure their practices aren’t adversely affected.