Wednesday, January 6, 2010
More Bank Accounting Flexibility
"Facing political pressures to abandon 'fair value' accounting for banks, the chairman of the board that sets American accounting standards will call Tuesday for the 'decoupling' of bank capital rules from normal accounting standards. His proposal would encourage bank regulators to make adjustments as they determine whether banks have adequate capital while still allowing investors to see the current fair value--often the market value--of bank loans and other assets. ... 'Handcuffing regulators to GAAP or distorting GAAP to always fit the needs of regulators is inconsistent with the different purposes of financial reporting and prudential regulation,' Mr. [Robert] Herz said in a prepared text. 'Regulators should have the authority and appropriate flexibility they need to effectively regulate the banking system,' he added. 'And conversely, in instances in which the needs of regulators deviate from the informational requirements of investors, the reporting to investors should not be subordinated to the needs of regulators. ... Mr. Herz said that Congress, after the [S&L] crisis, had required bank regulators in 1991 to use GAAP as the basis for capital rules, but said the regulators could depart from such rules", my emphasis, Floyd Norris at the NYT, 8 December 2009, link: http://www.nytimes.com/2009/12/08/business/08account.html.
The banks want "flexibility" to conceal insolvency. I'll say it: the PCAOB and Big 87654 either aid and abet securities fraud or are so incompetent they should be sent back to Accounting 101. These cowards sit and do nothing while insolvent entities like Citibank march on consuming public funds. Bank "regulators" conceal what they want. But the BIG 87654! I'm shocked. Like Captain Renault in "Casablanca", 1942, "Round up the usual suspects". That's it PCAOB, put obscure CPA firms out of business which audit less than $1 billion of client market cap. The appropriate response Herz was, "You regulators do what you want. But the FASB will not help you conceal what you are doing".