UPDATE: FASB 166 and 167
Posted by Larry Doyle on December 4, 2009 11:27 AM |
Is Wall Street getting a reprieve from the capital constraints that would be effected by the implementation of FASB 166 and 167? I first broached this topic a month ago in writing, “12th Street Capital Reviews FASB 166 and 167 and Tells Us Why Wall Street Will Need More Capital”:
In brief, FASB 166 and 167 will require hundreds of billions in assets to be moved from off-balance sheet vehicles onto the balance sheets of the financial institutions. As those assets, which are embedded in an array of securitization transactions, come on balance sheet, the banks and non-banks alike will have to raise more capital to support the growth in their balance sheets. Best guesstimate is that the institutions will need to raise capital in the tens of billions.
12th Street Capital provides us updated developments on this very important topic with the following release:
A bit of good news for banks today. In a Bloomberg interview, FDIC Chairman Sheila Bair said that she is in favor of giving banks “some breathing room” to raise the additional capital that will be required to support the hundreds of billions of dollars of securitized assets that will be consolidated onto their balance sheets as as result of the implementation of FASB Statements 166 and 167. Bair said she hopes to have the matter voted on at the December 15 meeting of the FDIC’s board.
Bair noted in the interview that there is not yet agreement among the banking regulators on the question of “breathing room.” The background is that FASB Statements 166 and 167 change the GAAP sale rules for securitizations and will require most off-balance sheet deals to be consolidated back onto their sponsor’s balance sheets (assuming that the sponsor retained an interest in the deal and control). The Statements are effective beginning January 1 for calendar year companies.
In September, the FDIC, Fed, OCC and OTC jointly issued proposed rules that would require banks to comply with their leverage and risk-based capital requirements with no grace period or “breathing room” to accomodate their grossed up balance sheets. The comment period on the proposed rules ended October 15. Final rules have not yet been published.
Why are FASB 166 and 167 being implemented? So that a true measure of integrity can be effected in assessing banks’ books and balance sheets. Clearly, the integrity of operations within the SIVs (structured investment vehicles) housed off-balance sheets were massively violated by the banks.
Pardon my cynicism and sarcasm, but I wonder if the capital needed by the banks to comply with FASB 166 and 167 has already been committed to the bonus pools of the banks. Who takes the risk? Taxpayers. Who takes the money? Wall Street.
The joke continues.