Bankers seek action on fair value before year-end

BVWireIssue #75-1
December 3, 2008

In a letter penned to Treasury Secretary Henry Paulson Jr., American Bankers Association president Edward Yingling notes that, “delay in addressing the failures of the mark-to-market mechanisms in fair value reporting will undo much of the work of Treasury’s Capital Repurchase Program.” Yingling’s suggested remedies, “which do not require a wholesale reworking of mark-to-market,” are:

  1. The accounting rules for other than temporary impairment should be based on credit impairment [rather than impairment in ‘fair value’ as determined under FAS 157].
  2. The definition of fair value should be based on willing buyer/willing seller [rather than exit price].
  3. The implementation date for the new business combinations rules [FAS 141R], which are controversial and are based on fair value, should be delayed.

According to Yingling, “these changes will actually improve financial reporting for users of financial institutions’ financial statements, as the current illiquid values required to be reported have a significant downward bias, which results in overstating losses.”

The letter was simultaneously sent to the SEC, the Federal Reserve, incoming Treasury Secretary Timothy Geithner, and Democrat and Republican leaders of the House Financial Services Committee and the Senate Banking Committee.

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