FASB Relaxes Fair Value Measures In Valuing Distressed Assets

The FASB has relaxed the fair value rules which was expected:

• FASB agrees the objective of mark-to-market accounting is still what would be received in an orderly transaction in the current inactive market.
• FASB says an ‘orderly’ transaction does not include forced liquidation or distressed sale.
• FASB agrees to remove presumption in mark-to-market accounting rule that all transactions in an inactive market are distressed unless proven otherwise.

This will allow banks more flexibility in valueing distressed assets like mortgage backed securities.  They do not have to use “last price” but could use other methods.  This would be effective in the 2nd half of the year.

The implication is it should free up some capital for the US banks which would allow them to lend more.

This may lessen the need for banks to get the toxic assets off their books.   It should be favorable to the stock market/bank stocks.  The currency markets have generally been sold on a stronger stocks.

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