WASHINGTON — The board that sets U.S. accounting standards moved Monday to end companies’ use of a device that allowed them to park hundreds of billions of dollars in loans off their balance sheets without capital cushions and has been blamed for helping stoke banks’ losses in the housing boom.
The change will tighten the use of so-called “qualifying special purpose entities” by requiring companies to report to regulators the loans contained in them and to increase their capital reserves in proportion as a cushion against potential losses.
It was the lack of disclosure and absence of capital supporting ballooning subprime mortgage loans in these special entities that aggravated the massive losses sustained by banks, regulators say.
The change by the Financial Accounting Standards Board could result in about $900 billion in assets being brought onto the balance sheets of the nation’s 19 largest banks, according to federal regulators.
The information was provided by Citigroup Inc., JPMorgan Chase & Co. and 17 other institutions during the government’s recent stress tests, an analysis designed to determine which banks would need more capital if the economy worsened.
