Yingling Comments on OTTI

Ed Yingling, President of the American Bankers Association (ABA), released a statement yesterday expressing concern that Other Than Temporary  Impairment (OTTI) is being overlooked. In our opinion, he hits the nail on the head with his comments. The real issue surrounding mark-to-market accounting is OTTI, which is an accounting rule that in some cases can force banks to write down performing securities to the liquidation value which in a distressed market is far less than their intrinsic value.

We concur with Ed’s statement that the OTTI model used by international accounting standards is superior to the U.S. approach and consistent with all other financial assets.  While the Financial Accounting Standards Board (FASB) is in the process of reviewing mark-to-market rules, they should give this topic of OTTI full consideration. We’ll take it a step further by adding that U.S. GAAP and the International Accounting Standards Board (IASB) have already committed to “converging” their rules over time.

While we understand that this convergence is a step-by-step process and takes time, we believe that prioritizing and immediately modifying U.S. accounting rules on OTTI makes sense since convergence is already forthcoming at some point and this issue needs attention today. The international rules are superior to those of the United States given the punitive nature of the U.S. rules in distressed markets, and the organizations should focus on converging the largest, most pressing issues first.

For more information on OTTI, please watch our video below.

Watch Ed Yingling on CNBC below.