Accounting rules need to be more "realistic" so Federal Home Loan Banks and other institutions holding MBS until maturity do not have to take "excessive" writedowns, according to House Financial Services Committee chairman Barney Frank, D-Mass.
"The Seattle and Boston Federal Loan Banks have been unduly hit by this and it has restricted lending," Frank told the American Bankers Association government affairs conference.
The Boston bank recently reported a $339.1 million "other than temporary impairment" (OTTI) charge on $652.9 million in private-label MBS. The bank only expects a $22 million loss over the life of the securities.
The Financial Accounting Standards Board is scheduled to approve changes to its OTTI accounting rules this Thursday (April 2).
But ABA is concerned that FASB will limit the impact of those changes to newly impaired assets and the Boston FHLBank, for instance, would not be able to benefit and reverse the $339 million OTTI charge. "If people were forced unduly to mark down instruments that are going to be held to maturity and paying then I think they ought to be able to go back up," Frank said