Under pressure from banks and regulators, the Financial Accounting Standards Board has decided to reverse itself and postpone the effective date of an accounting rule that would have forced financial institutions to move assets and liabilities from special-purpose entities such as mortgage-backed securities onto their balance sheets.
The board unanimously decided at a meeting Wednesday to change the date for when financial institutions would have to account for the special-purpose entities on the balance sheet.
The transition and effective dates for FASB Statement No. 140 and FASB Interpretation No. 46 (revised December 2003) will now be a single effective date for fiscal years beginning after Nov. 15, 2009, a year later than had been scheduled. The rules will thus go into effect for calendar-year companies in 2010 instead of 2009.
Banking regulators had been concerned about the potential impact on Fannie Mae and Freddie Mac, as well as on banks, which would have needed to raise substantial amounts of fresh capital in today's difficult market. A Citigroup analyst estimated in May that banks in the U.S. could be forced to put up to $5 trillion worth of debt assets on their balance sheets once the rules went into effect.
While FASB agreed to delay the rule, it did so reluctantly. "It does pain me to allow something that has been abused by certain folks, to let that go on for another year," said FASB Chairman Bob Herz (pictured).
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