The Financial Accounting Standards Board met this morning to discuss issues concerning the implementation of FAS 155. Specifically, how FAS 155 affects ABS/MBS and whether an exemption needs to be issued.

A Merrill Lynch report said that the focus of the meeting was on determining which ABS/MBS structures are subject to the double-double test, noting that this is only one of two tests that a bond must pass to avoid hybrid security accounting. The other test says that if an investor might not recover "substantially all" of his or her initial investment, then the bond is seen as a hybrid. All ABS/MBS are still subject to this test, but very few bonds will actually fail it, Merrill said.

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