On August 26, the federal banking and thrift regulatory agencies announced that they are seeking comment on a proposed regulatory capital rule related to the Financial Accounting Standards Board’s (FASB’s) adoption of Statements of Financial Accounting Standards Nos. 166 and 167. Beginning in 2010, these accounting standards will make substantive changes to how banking organizations account for many items, including securitized assets, that are currently excluded from these organizations’ balance sheets. On June 12, FASB finalized modifications to FAS 140 and FIN 46(R) (the 2009 GAAP modifications) through Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140 (FAS 166) and Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (FAS 167).
FAS 166 and FAS 167 are effective for the first annual financial statement reporting periods that begin after November 15 and for interim and annual periods thereafter.
The 2009 GAAP modifications, among other things, remove the concept of a Qualified Special Purpose Entity from GAAP and alter the consolidation analysis for Variable Interest Entities (VIEs), thereby subjecting many VIEs that are not consolidated under current GAAP standards to consolidation requirements. These changes will require some banking organizations to consolidate the assets, liabilities, and equity of certain VIEs onto their balance sheets for financial and regulatory reporting purposes.
Banking organizations affected by the new accounting standards generally will be subject to higher minimum regulatory capital requirements. The agencies’ proposal seeks comment and supporting data on whether a phase-in of the increase in regulatory capital requirements is needed. It also seeks comment and supporting data on the features and characteristics of transactions that, although consolidated under the new accounting standards, might merit an alternative capital treatment, as well as on the potential impact of the new accounting standards on lending, provisioning and other activities.