A dispute between the US and international accounting groups about how to value financial instruments is threatening to derail efforts to converge global standards, affecting how trillions of dollars of assets are marked on bank balance sheets.
The debate pits the US Financial Accounting Standards Board (FASB), which wants to expand the use of fair-value accounting to all financial assets, including loans and deposits, against the London-based International Accounting Standards Board (IASB), which opposes such a wide usage. The outcome also will determine how much capital banks have to hold to meet new rules.
FASB’s proposal, announced in May, could cause 26 of the largest US banks to write down the value of about $4 trillion of loans on their books by as much as $138 billion, estimated Jason Goldberg, an analyst at Barclays Plc Lenders, regulators and some investors have taken IASB’s side, leaving the US standard-setter isolated in its battle.
“Treatment of financial instruments has been the sticking point, and there’s a lot of political pressure on all sides on that,” said Paul A. Volcker, a former chairman of the Federal Reserve.