The American Securitization Forum (ASF) and the Securities Industry and Financial Markets Association (SIFMA) today sent a letter stating their concerns regarding Statement 140 and Interpretation 46(R) to the Financial Accounting Standards Board and several regulators.

The ASF and SIFMA said that the Board’s current course of action may have serious unintended consequences.  In particular, the ASF and SIFMA said that a yearend deadline is not a necessary response to current market conditions, and outlined the risks of too much haste.

The first risk is the impairment of financial ratios and financial covenant performance and regulatory capital tests as a result of swelling balance sheets of the affected entities to the extent that accounting standards changes result in the abrupt consolidation of securitization special-purpose entities (SPEs).


The second risk is that without time to consider the appropriate regulatory and rating agency response to such changes in accounting, regulated entities will face capital constraints. Both regulated and unregulated entities will face substantial challenges (and their capital raising efforts will be complicated) by explaining the dramatic changes in their financial statements to investors and lenders; and in some cases, regulated and unregulated entities will be further burdened by the need to seek waivers for financial covenant breaches triggered by accounting changes in an environment where lenders may be unreceptive to these requests.


The third risk outlined is that policy changes without international convergence will prolong the drain on the Board's and constituents' time, as further changes to derecognition and consolidation policies are virtually certain to result from the convergence process.


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