Rating agency Fitch Ratings said last week that the Financial Accounting Standards Board's (FASB) proposal on the treatment of credit losses for loans and other financial assets could have a detrimental effect on U.S. bank reserve levels.
The FASB proposal, currently in the public comment stage, would change the way banks account for expected loses on loans and other financial assets, requiring a more timely recognition of future losses as expected cash flows change. Currently, institutions are allowed to wait until losses are incurred.
Fitch said the loss model from the proposal could lead U.S. banks to report asset values more conservatively than their international counterparts. Specifically, the agency said that the use of the FASB model could lead to quarterly adjustments in expected loss provisions, whcih could lead to increased volatility in reported earnings.
What do you think? Would this proposal have unintended consequences?
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