ICBA - News - News Release - ICBA Urges FASB to Withdraw Exposure Draft Proposal on Accounting Standards
ICBA News Release Header


ICBA Urges FASB to Withdraw Exposure Draft Proposal on Accounting Standards

Washington, D.C. (September 1, 2010)-The Independent Community Bankers of America (ICBA) today urged the Financial Accounting Standards Board (FASB) not to go forward with accounting changes in  its Exposure Draft: Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities.

“In ICBA’s view, the accounting that would result if this proposal went forward would greatly misrepresent the operations of community banks and many other financial institutions whose primary business practice is to hold financial instruments to collect contractual cash flows, not to trade them on a regular basis,”  ICBA said. 

Community banks fund their operations by taking deposits and holding loans for the long term.  Most financial instruments community banks hold are not readily marketable.  Community banks are not in the business to create or purchase assets or liabilities for quick resale. The proposed accounting treatment will cause community banks to reconsider making longer-term loans and deposits because of the impact the changes will have on fair values they need to record.

“This will hurt community banks and other financial institutions that hold these instruments, but more importantly it will hurt consumers and small businesses that now depend on the greater certainty that longer-term deposits and loans offer.  We don’t believe that it’s the role of accounting to drive financial product offerings or limit financial choices,” ICBA said.

ICBA also said in the letter that community bank investors don’t support this proposal and don’t see it as an improvement in transparency.   Community banks will need to expend significant resources to comply with this standard, which is of questionable value, and those funds would be better used to provide needed credit to their communities.

“Accounting standards and guidance should not be pro-cyclical,” ICBA said.  “Recent market conditions have demonstrated the pro-cyclical nature of mark-to-market accounting as declining values of financial instruments necessitated write-downs and sales, causing further write-downs and sales.  The proposed accounting changes will exacerbate cyclicality in financial reporting due to the greater reliance on fair value measurements, valuations that will be less accurate than current accounting requirements.” 

In the letter, ICBA also highlighted significant concerns with the proposed accounting treatment for deposits, loans and credit impairments and the need for more flexibility in setting loan loss reserves.

To read ICBA’s comment letter, visit www.icba.org.