Capital Commerce

FASB Mark-to-Market Change and PPIP

April 2, 2009 RSS Feed Print

Dr. Ed Yardeni makes a good point here about the continued relevancy of the Geithner Plan:

The revisions to the mark-to-market rule (FASB 157-e) today should give a boost to profits of financial companies. More importantly, it should take the pressure off of them to raise funds to fill up black holes in their capital created by the original rule. The government has made it extremely unappealing to take federal bailout money. Doing so has been a sure way to get into an abusive relationship with Barney Frank. ... FASB 157-e might make the Treasury’s latest cockamamie toxic asset plan (PPIP) totally irrelevant. When the FDIC starts to hold auctions for pools of distressed bank loans, the banks might not show up since they are more likely to hold onto their loans rather than sell them at the heavily discounted prices that buyers are likely to bid.

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If banks found out that they were unlikely to get the full principal and interest on purchased mortgage backed securities they owned, the securities had to be impaired. For an impaired security, the banks had to figure out what they would get if the securities were sold in the market. With the current liquidity crisis in the market, banks were forced to write down securities by amounts far greater than actual credit losses. Now banks will have more discretion in determining true credit losses and impairing securities accordingly.
It will significatly improve capital adequacy ...ratios such as Book Equity/Assets , Tier 1 Capital/Risk Weighted Assets will look a lot better thereby reducing the need for banks to pump more capital in their bank during a time of distress.

Vikrant of PA 1:03PM April 03, 2009

We're back to kicking the can down the road.
Any hopes we had of U.S. businesses finally emerging from their stupor of denial and self-deceit may be have been dashed by this decision.
Better to remove that part of a limb hopelessly infected by gangrene rather than allow it to spread indiscriminately.

bin Dar Dundet of PA 5:01PM April 02, 2009

Take a listen to the replay of conf calls covering FAS 157-e at Duff & Phelps site...They will have another call tomorrow further discussing these changes.

LV of TX 2:32PM April 02, 2009

FASB Mark-to-Market Change and PPIP

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