William Isaac, former Federal Deposit Insurance Corp. (FDIC) chairman and an opponent of the mark-to-market accounting regime proposed by the Federal Accounting Standards Board (FASB), believes the recently announced proposal to expand the regulation may cause a dire and difficult situation for already struggling lenders.
FASB announced on Thursday that it will expand so-called mark-to-market accounting to loans, a rule that will require banks and other lenders to book their loans at current market value, where previously the institutions had more choice in valuing assets.
“If yesterday's action by FASB in announcing it intends to expand mark-to-market accounting to loans does not spur Congress into action on providing some systemic oversight on FASB, I don't know what it takes,” Isaac said. “FASB's proposed action will destroy banking as we know it and will make it virtually impossible for small businesses and real estate developers to obtain longer term financing.”
Isaac, who currently serves as chairman of consulting firm LECG’s global financial services unit, added he expects the agency’s move will have an immediate effect, “The mere publication of the FASB proposal will likely depress lending even further than it already is," he said. "FASB's proposal is irresponsible.”