FASB Approves Mark-to-Market Rule Changes

The Financial Accounting Standards Board has approved major changes to its mark-to-market rules that could allow banks to reverse of some of the writedowns they have taken on mortgage-backed securities and report an increase in earnings and capital for the first quarter. Under pressure from Congress and the banking industry, FASB clarified its "other than temporary impairment" guidance so banks don't have report the entire estimated impairment as a loss on the income statement. Institutions would report only credit losses in income, provided they don't expect to sell the MBS until there is an economic recovery. FASB also made the change retrospective to all securities with OTTI. Banks will probably start issuing press releases soon advising investors on the impact the new mark-to-market rules will have in the first quarter financial results, according to Barry Epstein, a partner with the accounting firm Russell Novak & Co. in Chicago. "Assuming the revised mark-to-market adjustments are less burdensome than what they previously reported, they are going to have a bounce back in their regulatory capital. That, in theory, will encourage them and permit them to expand their lending activity," Mr. Epstein said.