Yves Smith has a fine 11 December 2008 post at her Naked Capitalism about the FASB 157 flap, link: http://www.nakedcapitalism.com/2008/12/quelle-surprise-banks-increase-mark-to.html. I previously commented on FASB 157 here:
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Tweaking the rules while the Hindenburg inflates itself on the balance sheet of banks...
Via Yves via the FT...
"... “A lot of banks are saying: ‘I am going to move securities to level-three assets because I have more control over, and confidence in, the model used for their valuations’,” said Gregg Berman, head of the risk management unit at Risk Metrics.
The study is based on regulatory filings by the biggest underwriters and traders of mortgage-backed securities and CDOs. These asset classes have plunged in value amid a wave of house price falls and foreclosures and are at the centre of the crisis...
Michael Thompson, managing director of MCRS, said he would be “surprised if we did not see writedowns of these level-three assets” in the fourth quarter.
Already, level-three assets are many times bigger than the market cap of the banks."
Russian roulette is... some bullets steady state... some bullets declining housing market... some bullets appreciating housing market...
Oh what a tangled web they wove... toxins everywhere... Ben... Ben... printfaster...
And on the revenue side...
"U.S. commercial banks reported $6 billion of revenue from trading foreign exchange, interest-rate and other derivative instruments in the third quarter as credit spreads deteriorated and accounting rules inflated results, the Office of the Comptroller of the Currency said on Monday.
As credit spreads widened, the value of banks’ trading liabilities declined and trading revenue increased.
... the value of trading revenue was inflated during the third quarter because of fair value accounting rules that went into effect at the end of 2007.
The rules require banks to mark derivative contracts to current market values each quarter.
“I don’t think they had a really strong quarter; they had a good quarter,” Dick said about the banking industry’s trading revenue. “(The gain) was largely due to accounting purposes, not necessarily due to client flow or customer demand.”
http://www.financialweek.com/apps/pbcs.dll/article?AID=/20081229/REG/812299970/1036
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