WASHINGTON — The board that sets U.S. accounting standards on Thursday gave companies more leeway in valuing assets and reporting losses. The changes should help boost battered banks’ balance sheets, and financial stocks rallied on Wall Street, but the rules may undercut a new financial-rescue program.
Some experts and industry officials said the move will help resuscitate banks, allowing them to increase earnings and carry less capital as a buffer against potential losses.
But others said the changes by the Financial Accounting Standards Board could undermine a crucial new rescue program mounted by the Obama administration, in which the government is joining with private investors to buy from banks hundreds of billions of dollars in toxic assets.
In the short run, banks would benefit by raising the value of the assets. But higher values could drive away prospective private investors — who don’t like to overpay, even though the government will absorb most of the risk.
“I do think the timing is terrible,” said Sue Allon, the CEO of Allonhill in Denver.
Ideally it would have been better for the government-backed program to have been started up and producing “some lift” to prices before FASB made its move, Allon said.
Joshua Shapiro, chief U.S. economist at MFR Inc., was more blunt, saying the FASB decision “allows financial institutions to use fictional valuations on many of their toxic assets” and further obscures their “true position.”
