FDIC seeks comment on bank accounting change

August 27, 2009

REGULATION-SUMMIT/   By Karey Wutkowski and Steve Eder
   WASHINGTON, Aug 26 (Reuters) – U.S. regulators plan to gauge how severe a hit banks will take from an accounting change that will force them to bring more than $1 trillion of assets back on their books, the Federal Deposit Insurance Corp proposed on Wednesday.
   The FDIC voted to seek input on whether banks need more time to build capital cushions against the assets that were once held by off-balance-sheet trusts.
   “I think it’s very appropriate that we’re asking the question should we phase this in over time or not,” said Comptroller of the Currency John Dugan.
   “Some type of transactions may require a different type of capital treatment than others,” Dugan told the meeting of the FDIC board.
   The accounting change requires that banks move those assets back onto their books on Jan. 1, 2010, in an attempt to bring more transparency to banks’ financial statements.
   Banks have used off-balance sheet vehicles to avoid reporting requirements or to reduce the amount of capital they needed to hold to offset risks.
   Banking regulators are worried how current capital requirements would work with the accounting change.
   Earlier this year, the Financial Accounting Standards Board decided to eliminate a concept known as the “qualified special purpose entity” that banks have used to keep assets such as mortgage-backed securities off their books.
   FDIC Chairman Sheila Bair said regulators needed more information about how the accounting change could affect securitization markets and loan modifications.
   Bringing back trillions of dollars in assets and liabilities onto the balance sheets of banks could have a profound impact on how they operate.
   The financial services industry is worried about how much capital will have to be raised and has said any increase in capital requirements would likely reduce how much banks can lend.
   The American Bankers Association, which represents all banks, has urged that any capital requirement changes be phased in over a period of three years.
   “Such a transition … will allow banks to migrate to alternative procedures and funding without completely halting the markets that rely on securitization,” the ABA said in June letter to federal banking regulators.
   The Federal Reserve, during a recent “stress test” of the largest 19 U.S. banks, said the accounting change could mean about $900 billion of assets being brought onto the books of those institutions.
 (Reporting by Karey Wutkowski and Steve Eder; writing by Rachelle Younglai; editing by Simon Denyer and Andre Grenon) ((E-mail:karey.wutkowski@thomsonreuters.com +1 202 898 8374)) Keywords: FINANCIAL/REGULATION ACCOUNTING 
  
Wednesday, 26 August 2009 22:59:51RTRS [nN2665190 ] {C}ENDS

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