FASB Mark-to-Market Change and PPIP

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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

Not sure if anything material has changed. Under the original fas 157, banks were allowed to mark to model assets that were difficult to trade or value due to lack of liquidity. Surely banks must have used discounted cash flow method, among other methods, as part of mark to model valuation?

woosuk kim of NJ 11:39AM April 02, 2009

If the banks don't need to sell anything called "toxic", well GREAT! Us taxpayers don't really want to buy that stuff with our money and our guarantees and a bunch of hedge-fund-like participants walking off with most of the profits on it anyway.
What is important here is not a blame game on Geithner. What's important is that the new mark-to-market rules not be used to pump up the "value" of "toxic" assets such that the banks STILL sell them to us taxpayers but at higher prices. THAT looks like the risk of this to me.

Muser of NM 11:23AM April 02, 2009