Corporate Community Fears FASB Proposals Will Harm Recovery of Securitization Markets

In a letter to the President’s Working Group on Financial Markets, the Chamber of Commerce Center for Capital Markets Competitiveness warned that FASB’s proposed changes to FAS 140 and FIN 46(R) may hinder nascent efforts to regenerate the securitization markets. Thus, the Center urged the Working Group to ensure that significant changes to these accounting standards be approached with appropriate deliberation so that they are implemented with minimal harm during this challenging time. The President’s Working Group on Financial Markets is comprised of the Treasury Secretary and the chairs of the SEC, the CFTC, and the Federal Reserve Board.

The Center also asked policymakers to address this issue through a joint project with the IASB so that any changes are harmonized with international accounting standards and that implementation for the securitized credit markets would occur only once and with limited disruption. After considering all of the feedback received on these original proposals exposed for comment in September 2008, the FASB has concluded its deliberations and expects to issue final standards in June 2009. In comments to FASB on the proposals, there was concern that now is not the time to make such significant changes due to the potential impact they may have on the securitization markets and the availability of funding for companies that rely upon those markets for such funding.

The Center said that the proposed changes to FAS 140 and FIN 46(R) will impact both the U.S. financial sector and securitized credit markets which provide substantial financing options to consumers and businesses. The amended FAS 140 will provide accounting guidance on when a sale of a financial instrument has occurred and how to account for the sale. The amended FIN 46(R) will provide guidance on when a securities issuer needs to consolidate the securities and liabilities on its balance sheet. Currently, noted the Center, securitization markets do not consolidate the issuing entities used in securitizations. But in the Center’s view, the proposed changes could require consolidation by many of these entities, which will impact capital and liquidity necessary for lending and other important services. In turn, these changes will affect U.S. financial institutions and the secondary markets that fuel borrower access to credit.

It is crucial that policymakers and market participants fully examine all policy options and consider the far-reaching implications of these changes for the securitized credit markets, consumers and overall economic recovery. The Center pointed out that the Obama Administration believes that no financial recovery plan will be successful unless it helps restart frozen securitization markets. Similarly, The Group of Thirty, chaired by former Federal Reserve Chair Paul Volcker, has directly addressed improvements to securitization accounting, emphasizing that careful consideration be given to how these rules are likely to impact efforts to restore the viability of securitized markets.