Archive for August, 2009

Mark-to-Market….”Bayonetting the Wounded”

Friday, August 14th, 2009

The Accounting Board’s discussion of a return to Mark-to-Market for banks and financial institutions has the potential to be a disaster to the economic health of our country. Trying to value Level Three Assets such as loans would cause wild swings in the capital base of banks on a quarter by quarter basis. In rising interest rate environments, as we are certain to experience in the near future, bank’s capital would be wiped out even though their loan portfolios are performing… Community Banks which typically have high loan to deposit ratios, and where the majority of their balance sheet contain portfolio loans, would suffer disproportionately from banks that retain no interest in the loans underwritten. Lending would cease in times of irrational or illiquid markets, as would capital investment. Without investment in banking, lending would certainly dry up and the economy would move into a deflationary environment…

FASB needs to carefully consider these issues, and be aware that even the discussion of a move toward Mark-to-Market could cause significant harm to the financial industry, and its ability to raise capital…

Click here to watch my discussion with CNBC’s Larry Kudlow on this topic.