FASB Chair Herz Forcibly Fed the Kool-Aid, Says Banks Deserve a Break on GAAP

Wednesday, December 09, 2009 , , , , 3 Comments

Well WTF, why do we even have rules? Let's forget about revenue recognition, revenues can now be recognized when they are earned and realizable or totally imagined and never realizable. Screw it.


Robert Herz, chairman of the Financial Accounting Standards Board, wants to loosen the ties between accounting standards and banks' capital thresholds.

At the American Institute of Certified Public Accountants's annual meeting Tuesday, Herz called for a "greater decoupling of bank regulation from U.S. GAAP reporting requirements," according to his prepared speech. He has previously voiced his support for the concept.

Herz noted that while bank regulators use financial statements based on U.S. generally accepted accounting principles as a reference point for determining a financial institution's capital needs, the standards "do not dictate regulatory requirements."

To be sure, Herz is trying to quell any misconceptions about how deep the connection is between accounting rules and bank regulatory requirements. Such "confusion" (his word) has resulted in U.S. and international standard-setters feeling the heat from politicians and bank lobbyists since the credit markets began to crumble two years ago.

Most likely, the chairman would prefer to keep accounting rulemaking and banking regulation separate — in the minds of observers, as well as in practice — to repair FASB's independence, which has been tampered with in the past several months as bank lobbyists and lawmakers pressured the board and its international counterpart to ease fair-value accounting rules. The separation would put the onus on banking regulators to make changes in how they determine financial institutions' baseline capital needs.

Herz acknowledged that investors' and regulators' needs differ when it comes to the merits of the concept of measuring financial instruments according to current market values. Cost accounting may be more useful for regulators, he noted, for valuations of some assets in determining capital requirements. However, he added, "in instances in which the needs of regulators deviate from the informational requirements of investors, the reporting to investors should not be subordinated to the needs of regulators."

Bob Herz doesn't realize it but he just slaughtered capitalism's last chance and then took a long hard piss on its carcass FTW.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


Hmmm, isn't it called deferred losses? I mean, the banks can't take the hit right now, so the losses need to be spread out over the economic recovery? FDIC has no money and Congress won't get near anything that resembles a bank bailout, so the remaining alternative is to kick the can down the road? Just thinking out loud, lol.

I don't think a return to GAAP-RAP differences will be a good thing, and I don't think telling somebody who isn't playing nicely in your corner of the playard to go find their own playard is necessarily the entire solution. I think there are some legitimate concerns with application of certain methods of determining fair value in certain markets, and I think someone needs to draw a dotted line to trace the steps from proposal to comment letters to final standard, to see how information learned from comments is handled (or not). But splitting one game of kickball into two isn't going to solve matters for long.

cjn said...

You summed it up in the first paragraph perfectly.