FASB, Mark-to-Market, and the Geithner Plan

It could make selling toxic assets a whole lot easier.


I had a great chat yesterday with banking expert Ellen Marshall of the law firm Manatt, Phelps & Phillips. She made several points which, to me, mean the loosening of mark-to-market accounting rules will actually make it more likely that banks will be more willing to part with some of their  so-called toxic assets. As she puts it:

1) Banks would like to sell some assets, to reduce the size of the overall balance sheet, but cannot afford to do so at a price that will result in reduction of their capital.

2) In today's chaotic market, this may mean testing out the market for sales of assets in various categories.  If they do so, though, they fear that the accountants will say that all of their assets are in the "held for sale" group, and therefore even the ones that don't sell would need to be marked down.

3) If there were a way to know with certainty that selling, or offering to sell, an asset or category would not automatically mean that it and other assets would need to be written down, that would create a huge opportunity for banks to explore opportunities to shore up their capital position.

4) In many cases, this can make the difference between surviving the current crisis and becoming fodder for the FDIC.

Me: In other words, there was a fear among banks that selling some assets at firesale prices would force them to mark down all their mortgage assets, even if meant to held until maturity.