Facing intense pressure from Congress and the financial services lobby, the Financial Accounting Standards Board (FASB) relaxed mark-to-market accounting rules last month. The changes allow banks and publicly traded entities more leeway in determining how to value assets when the market for those assets is considered dysfunctional. While the changes were welcomed as a good step towards regenerating liquidity, financial market experts expected little immediate change in the debt markets.
“First step, good job, let’s keep it coming—because there are no definitive steps that immediately turn the lending faucet on or off,” says Vince McBrien, a managing director with Chicago-based real estate investment banking firm HIGroup. “The FASB changes provide banks with some relief and time that hopefully stimulates them to go into the capital markets and raise additional equity for lending. It makes banks perhaps more likely to lend in the near term than they were before.”
Mark-to-market accounting rules have been vilified for exacerbating the current global financial crisis by forcing banks to value real estate loans and assets far below their actual worth. FASB revisions state that the fair value for an asset price should be determined by what would be received in an orderly transaction that is not considered a forced liquidation or distressed sale.