Brown: Relief From Fair Value “Essential For Community Banks to Survive”

In an opinion piece published in American Banker, president and chief executive officer of the Community Bankers Association of Georgia spoke in favor of current legislation that would “provide relief for real estate-related assets by allowing community banks to amortize losses on commercial real estate loans and ‘other real estate owned’ (repossessed properties) over 10 years for regulatory capital purposes.” The Communities First Act, first introduced to Congress in 2011, “provides a broad range of much-needed regulatory and tax relief for community banks and their customers,” said Brown.

Current mark-to-market rules under generally accepted accounting principles (GAAP) require the immediate recognition of losses.

Decoupling GAAP from regulatory accounting practices, says Brown, would allow community banks to more easily spread real estate losses over a longer period of time and give them better opportunities to work with borrowers rather than foreclose.

“Regulatory, tax and paperwork requirements disproportionately burden community banks, which lack the scale of larger institutions over which to spread legal and compliance costs,” Brown continued.

This legislation could stimulate a struggling economy by allowing small community banks to lend more easily to consumers and small businesses, many of which have limited funding options currently.

IASB Publishes Proposed Due-Process Enhancements

The International Accounting Standards Board (IASB) has published proposed due-process enhancements, seeking to clarify some of the steps the board takes when making ruling decisions. The proposed revisions explain in further detail how the board will assess the potential impact of a new rule, lays out a method of post-implementation reviews, and details how the board will conduct outreach activities.

Facing political backlash from global economic leaders as well as the United States Securities and Exchange Commission, the IASB is seeking to diffuse any tensions that may still be present in heated discussions on the integration of United States-based Generally Accepted Accounting Principles (GAAP) with International Financial Reporting Standards (IFRS).

Political tension, stemming from the global financial crisis and both boards’ decisions to make sudden sweeping changes to mark-to-market accounting regulations, has been a driving force to make the standards-setting process more transparent. Agreeing on mark-to-market accounting standards has been a major impediment in merging global and domestic reporting standards.

This move comes on the heels of a similar move by the Financial Accounting Standards Board’s overseer last year. The domestic due-process enhancement is now on its second performance review.