Comments on: How the regulatory sausage is made, mark-to-market edition A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: Butters Thu, 04 Jun 2009 17:44:31 +0000 I would tend to agree with Griff. The WSJ article seemed to make lots of hay out of FAS 157 changes but for the most part banks had already been using those kinds of techniques. Bob Herz (FASB head) has always said that MTM was never a “last trade” model but that it had evolved into it when auditors couldn’t come up with anything better.

It’s true that the OTTI/115 change could make earnings look better but since the non-credit (liquidity) component of the mark will still flow into OCI, it still impacts capital levels.

All in all, I think the changes they made were really minor. There are still trading, AFS/HFS and HTM/HFI categories and they will still be marked appropriately.

By: Ginger Yellow Thu, 04 Jun 2009 17:25:51 +0000 My best guess would be that the committe was the Financial Crisis Advisory Group, as that was the group tasked with looking at fair value accounting in the crisis. It also has more members like central bankers and former regulators whom one might expect to object – most investors loved the change. But that committee met in London on April 20, not April 28 in New York. The official minutes don’t mention anyone threatening to resign (I wouldnt’ expect them to), but they do show there was a vigorous debate over fair value measurement.

None of the other committees listed by FASB had meetings on April 28.

By: Griff Thu, 04 Jun 2009 01:47:25 +0000 well, it does not hurt their chances. But it’ll largely be a reporting gimmick. The biggest change was less obvious than what WSJ covered: ability to segregate the resultant AFS/FAS115 market loss into a credit component and liquidity component. For those who know it well, the securitized markets (MBS, agency debt) had ZERO liquidity, and even now it’s in a stage of gradual improvement.

It’ll help C, for example, but a JPM or GS will show stronger earning levels (i am supposing) than previously mentioned Citigroup.

There is little defense in arguing that a non-agency MBS product is actually worth $75 when the market is currently at $40. But in real terms, that liquidity component is worth 10-20 points, and the credit component may be 5-10 points. Marking long-term assets (think an avg life of 10+ years) is a recipe for certain continued disaster, and in some form the FASB change actually allows a “gradual forebearance”… Marking losses as they actually occur as opposed to a massive loss today on loan performance TBD in next 5-10 years, while not palatable to some, allows banks to rebuild capital thru current earnings (if they exist) as opposed to forcing capital raises when private capital was absolutely scarce.

By: Manshu Thu, 04 Jun 2009 01:11:27 +0000 I am not sure I understand this.

The lobbyists caused Congress to cause FASB to water down the MTM rules so that banks can show a profitable first quarter?
So, does that mean that the first quarter results by the banks have been boosted (at least in part) as a result of this rule change?