Scanning FASB Proposals on accounting treatment of financial instruments by banks
Will we get more insight if the recent proposals by FASB on M to M of all financial instruments held as investments by bank make their headway into the patchwork of US GAAP? I doubt it, I seriously doubt it. It may give regulators a little more headway and peek into the nature and size of investment/ liabilities structure of banking institutions, but as has always been the case bakers would convince regulators to permit them to report separate figures and presentation formats to investors. What a disaster for the investors, it will be. There is already enough information asymmetry between investors and the company managers, do we need any more complications with the accounting standards permitting the companies only to show what investors want to see; stable and sustained earnings.
I am always in favor of transparency and reduction of information barriers between investors, analysts and company insiders. This instills more confidence in the system and investors are a less worried lot. More confidence definitely leads to more investments in risky assets and every one is better off (of yeah I know, I must confess this holds only in the short run). Marking to market financial instruments is as enjoyable a feature for me as my pre diwali teen patti game with a bunch of friends (its another matter that I always screw up my Diwali budget with the game). As an investor and analyst I am happy and satisfied that all that is reported on the face of the balance sheet is something I can rely on and these are not just mythological figures. So where is the problem, when FASB is proposing exactly what I am looking forward to? Well what FASB has proposed is like telling every girl to have sex only after marriage. It just takes away all the pre marital bliss and spookes the fun out of the markets. Super Analysts and Insiders will no longer be able to court the best girls in their swankiest Lamborghinis.
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