FASB Delays Action on Rule
The Financial Accounting Standards Board (FASB) has removed from this week's agenda a discussion on a new rule that finance companies have said might force them to write down a bigger portion of debt securities that are held for sale, Bloomberg reported.
The rule is unlikely to be pushed forward until 2005, since the board that sets U.S. accounting rules wants more time to look over the 250 comment letters it has received, Lawrence Smith, chairman of the board's emerging issues task force, told Bloomberg.
Kevin McBride, a resident fellow of the board in Norwalk, CT, confirmed to Bloomberg that the board would not take up the issue at today's meeting as it had planned to do.
Bloomberg reported that nearly $1.7 trillion in debt securities held by banks, would be subject to possible write-downs under the rule, which would require the banks to recognize unrealized losses in net income statements for "available for sale" bonds.
Washington Mutual, Goldman Sachs Group and Freddie Mac are among the companies that have asked FASB to delay or rescind the rule, which was approved in March, Bloomberg reported.
"It will not be resolved before the year ends," Smith told Bloomberg.
Under the new rule, losses from the portfolios would reduce earnings unless managers proved they had the ability and intent to hold the securities until their value was recovered, Bloomberg reported, adding that the rule for the first time would cause write-downs based on changes in interest rates in addition to declines in value based on the ability of the issuer to repay the debt.
Banks, insurance companies and other institutions use the portfolios to match the duration of their assets to their liabilities, Bloomberg reported, adding that duration is a measure of interest-rate risk.