From www.nytimes.com:
With little notice, regulators at four agencies that oversee the nation’s banks and savings associations on Monday and Tuesday proposed a significant change in accounting rules to bolster banks and encourage widespread industry consolidation by making them more attractive to prospective purchasers. The regulators and the Bush administration have decided to resort to further loosening of the accounting rules to try to get the industry through problems that some experts have attributed in large part to years of deregulation.
With little notice, regulators at four agencies that oversee the nation’s banks and savings associations on Monday and Tuesday proposed a significant change in accounting rules to bolster banks and encourage widespread industry consolidation by making them more attractive to prospective purchasers. The regulators and the Bush administration have decided to resort to further loosening of the accounting rules to try to get the industry through problems that some experts have attributed in large part to years of deregulation.
The action by the four banking agencies provides more favorable accounting treatment of so-called good will, an intangible asset that reflects the difference between the market value and selling price of a bank. The move is similar to a step taken in the midst of the savings-and-loan crisis that helped many institutions in the short run.
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I'm not an accountant, but I do not think this is a good move. Goodwill is not a true asset, it is basically the amount of money you overpay for a purchase, in essence the amount you pay for the brand name. In insurance risk based capital ratios, goodwill must be deducted from the amount of capital you can use in the ratio.
Also, in today's markets what really is the selling price of the entity? How can you measure it? I think balance sheets will be overstated in the near term. And once they have put this in, it will be difficult to change it.
Plus it is not consistent with the IFRS coming in, which is all fair value principled.
But this is my humble opinion, we will see what happens.
I'm not an accountant, but I do not think this is a good move. Goodwill is not a true asset, it is basically the amount of money you overpay for a purchase, in essence the amount you pay for the brand name. In insurance risk based capital ratios, goodwill must be deducted from the amount of capital you can use in the ratio.
Also, in today's markets what really is the selling price of the entity? How can you measure it? I think balance sheets will be overstated in the near term. And once they have put this in, it will be difficult to change it.
Plus it is not consistent with the IFRS coming in, which is all fair value principled.
But this is my humble opinion, we will see what happens.
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