Fed said uneasy with coming balance sheet rules
The U.S. Federal Reserve has privately expressed concerns over new accounting rules that could force banks to move more assets onto their books, a person familiar with the Fed's thinking said on Friday.
The Financial Accounting Standards Board made changes in May to rules that could affect trillions of dollars in off-balance-sheet assets when they take effect in 2010.
Fed officials are concerned the changes could complicate emergency programs the central bank created over the last year-and-a-half to kick-start capital markets by ridding banks of toxic assets, said the person, who requested anonymity because of the sensitivity of the situation.
They are concerned about their ability to deal with the toxic asset issue, this person said. The Fed is trying to take these assets off the financial institutions, but some will come onto the balance sheet. They are afraid it will exacerbate an already complicated situation.
A representative of the Fed could not immediately be reached for comment.
FASB plans to eliminate a concept known as the qualifying special-purpose entity that banks have used to keep assets such as mortgage-backed securities off their books.
Companies will also have to alter how they evaluate transfers of financial assets, perform more analyses about whether they have a controlling interest in special-purpose entities, and increase disclosures to investors.
A powerful coalition of industry groups has criticized FASB's plan, and said the accounting board needs to coordinate with the International Accounting Standards Board to minimize the potential for confusion and market disruption.
The coalition set out its concerns in a June 1 letter to regulators including U.S. Treasury Secretary Timothy Geithner, Fed Chairman Ben Bernanke, and heads of the U.S. Securities and Exchange Commission, Comptroller of the Currency and Federal Deposit Insurance Corp.
Current proposals by the FASB... will undoubtedly impact both the U.S. financial sector and securitized credit markets, which provide substantial financing options to consumers and businesses, the coalition said.
The group includes the American Council of Life Insurers, the Mortgage Bankers Association, the U.S. Chamber of Commerce, the Real Estate Roundtable, the Financial Services Roundtable and the Commercial Mortgage Securities Association.
Most of the organizations successfully lobbied FASB earlier this year to make a controversial mark-to-market accounting rule more flexible.
(Reporting by Rachelle Younglai; Editing by Tim Dobbyn)
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