Banks Getting More Leeway on Mark To Market

One of the reasons that the credit markets and lending came to a near standstill last year was the mark-to-market rule that made lending a near impossible proposition because banks found that they were nearly worthless based on the current market values.

Well, the FASB is granting these banks more leeway on the mark-to-market rule, and it should be a catalyst in the stock markets today.

April 2 (Bloomberg) -- The Financial Accounting Standards Board, pressured by U.S. lawmakers and financial companies, voted to relax fair-value rules that Citigroup Inc. and Wells Fargo & Co. say don’t work when markets are inactive.

The changes approved today to fair-value, also known as mark-to-market, allow companies to use “significant” judgment in valuing assets to reduce writedowns on certain investments, including mortgage-backed securities. Accounting analysts say the measure, which can be applied to first-quarter results, may boost banks’ net income by 20 percent or more.

Because the banks will have greater leeway in valuing their property portfolios, they will be able to show more money on the books and enable more lending and freeing up the credit markets further.