FASB Signals Stricter Rules for Banks' Loan Vehicles

NEW YORK -- Possible accounting rule changes spurred by the subprime-mortgage crisis would make it harder and costlier for banks to package and sell off loans. That could make borrowing more expensive for consumers and companies but prevent the abuses that led to billions in losses over the past year, The Wall Street Journal reported Friday.

The changes come at a time of scrutiny of how financial institutions packaged mortgages and other loans into securities, shifting the risk of bad loans from their own balance sheets to investors. The changes will "be a little bit like taking the punch bowl away," said Robert Herz, chairman of the Financial Accounting Standards Board (FASB), which sets U.S. accounting rules, the paper reported.

Outlining the possible shape of these new rules during an accounting conference Thursday, Herz indicated that banks might have to keep on their books loans they previously packaged and sold off, or securitized, the paper reported.

Under current rules banks create securitization vehicles that hold the loans off their balance sheets. The Securities and Exchange Commission earlier this year asked the accounting board to create rules for these vehicles by year's end, the paper reported.

-- NYSSCPA.org News Staff

Posted on 5/2/08