Monday, November 16, 2009

FAS 166 & 167 Implications

A topic that I've referenced many times, but have yet to do a complete overview of is FASB's idiotic accounting rules. Barclay's (Hotel Tango ZH) looked at the impact to various banks by primarily looking at nonconforming resi, Credit Cards, and ABCP (It sounds to me like the rules encompass more products than that, but hopefully I'm wrong). Please read the whole article from ZH - I won't take it whole cloth.

This will have the impact of increasing asset levels and possibly reduce retained earnings--both which adversely impact capital ratios. Note consolidation results in an increase in loans and leases, securities, short-term borrowings and long-term debt on the banks’ balance sheets. In addition, there could be a cumulative effect of adopting these new accounting standards resulting in a charge to retained earnings relating to the establishment of loan loss reserves and the reversal of residual interests held. Additionally, limiting banks ability to recognize securitized assets as off-balance sheet exposures could have further consequences on credit creation.

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