August 9, 2012
At the urging of CBAI and ICBA, the Financial Accounting Standards Board (FASB) decided that nonpublic entities will not have to disclose the fair value amounts for financial assets and liabilities measured at amortized cost.
In a comment letter to FASB the CBAI stated that the fair value accounting change applied to community banks is more likely to mislead financial statement users than to provide them with a clearer picture of financial condition. The change would also be expensive for community banks to implement by requiring new accounting policies and practices.
The community bank business model is to make loans and hold them to maturity not actively buying and selling loans. Fair value or mark-to-market determinations are more appropriate for trading assets not community bank loans.
Community bank loans have unique risk profiles and are not readily marketable making them difficult if not impossible to determine realistic valuations. These loans would certainly be at a below-par or liquidation value from the very day they are made if FASB imposed this requirement.
The impact of aggressively discounted loan values would be devastating to community bank capital and surely jeopardize the very existence of many community banks. Read CBAI Comment Letter.
The FASB said that it would discuss at future meetings other disclosures (i.e. demand deposits) required of nonpublic entities).