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Posts Tagged ‘banks accounting practices’

Two Sets of Books Require Two Sets of Accounting Standards

Posted by Larry Doyle on December 8th, 2009 2:43 PM |

What was at the core of the current economic crisis?

The financial transactions embedded in the SIVs (structured investment vehicles) located off-balance sheet within our major financial institutions brought our country to its knees. As the securities housed in these SIVs plunged in value, Uncle Sam was forced to ride to the rescue and bail out Wall Street.

Uncle Sam’s bailing required not only billions in dollars but also the coordination and complicity of the accounting industry. The Federal Accounting Standards Board (FASB) knows that Congress, supported by Wall Street, jammed revised accounting standards in place in order to facilitate Uncle Sam’s bailout.

The FASB, in an attempt to save face and a degree of integrity, has pushed back on Wall Street by passing FAS 166 and 167 which would require investments in off-balance sheet vehicles to be brought on-balance sheet. The implementation of FAS 166 and 167 is imminent and would require financial institutions to set aside increased capital against selected assets.

Banks Want to Continue Rope-a-Dope Accounting

Posted by Larry Doyle on August 21st, 2009 8:04 AM |

If a financial position is hidden, disguised, or in some manner unreported, does that mean it does not exist or is not impactful? Will the American taxpayer continue to bear the burden of unsafe and undisciplined lending and investment practices on behalf of our banking system without being able to demand truth and transparency? Make no mistake, these very practices have brought our economy and financial system to its knees and if the banking system continues to get its way, we will remain subject to the massive risks connected with them. Let’s navigate this corner of our economic landscape and see what the implications are going forward.

CFO Magazine highlights the growing pressure from within the banking industry to delay the implementation of  accounting rules requiring banks to bring investment positions onto the balance sheet and raise sufficient capital to support them. In short, these accounting rules would strike at the nexus of the off-balance sheet vehicles which crippled many banks. CFO reports:

Bank regulators are set to discuss accounting standards next week, with an aim toward determining the potential affects that off-balance-sheet rules may have on some financial institutions. During the past year, bankers have fretted about new accounting rules that would force them to bring back on their balance sheets billions of dollars worth of assets — a move bankers have argued will throw regulatory capital ratios into chaos.

Bankers may fret, but taxpayers are picking up the tab on an ongoing basis. If these bankers really want to see ‘fretting,’ then they should start talking to the American public.

Why are the bankers concerned about implementing these new accounting rules? They believe it will force them to raise new capital, dilute their stock value (which will most likely negatively impact their own personal wealth), and increase the potential of a takeover or some other form of business transfer, including potential liquidation. The bankers would prefer to continue to operate in an undercapitalized fashion while they ‘hope and pray’ for a turnaround in the housing market which is at the very core of their investment holdings and overall franchise. (more…)

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