Tightened rules for banks' loans proposed

WASHINGTON (AP) – The rule-setting board for corporate accounting has proposed tightened rules that would force banks to value loans at current prices, prompting renewed opposition from the banking industry over a long-simmering issue.

The so-called “mark-to-market” rules proposed by the Financial Accounting Standards Board wouldn’t begin to take effect until 2013. But banks were stung in the mortgage crisis by earlier mark-to-market rules that forced them to take steep write-downs on some assets, especially securities tied to high-risk subprime mortgages.

FASB, an independent body based in Norwalk, Connecticut, writes the standards that guide accountants in preparing companies’ financial statements. Its new proposal would extend the mark-to-market requirements that currently cover complex securities to also apply to loans on banks’ books.

The goal is “greater transparency in financial statements,” FASB chairman Robert Herz said in a news release.

Investor advocates and other proponents of mark-to-market rules maintain that they make banks’ books more closely reflect the banks’ current financial condition by accounting for losses more promptly, helping investors and the capital markets and possibly helping avoid another financial meltdown. Critics say the rules mandate onerous write-downs - sapping investor confidence in banks - that don’t reflect the true value of assets and the prices they may fetch in the future.

FASB’s proposal “presents significant problems, not only for banks, but also the general economy,” Edward Yingling, president and CEO of the American Bankers Association, said in a statement. “If implemented, the proposal would greatly undermine the availability of credit by making it difficult to make many long-term loans, the value of which, even if performing perfectly, would likely be reduced on the day a loan is made.”

The effect of the new rules would be especially felt by regional and smaller banks, industry experts say.