The Financial Accounting Standards Board is considering changes in bank’s accounting that will require them to show loans on balance sheets at “fair market value” instead of original value. This would immediately impact the way a bank is viewed by investors and regulators alike. The rule, if instituted could reduce shareholders equity and regulatory capital to levels that could potentially eliminate some banks Tier I capital (equity).
The new changes will ultimately affect how a bank is valued by investors and also how much capital a bank will be required to have to do business. More news to come on the troubled asset front and how to solve this ballooning problem.
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