Washington, D.C. (Nov. 1, 2004) - In a comment letter to the Financial Accounting Standards Board (FASB) today, Independent Community Bankers of America (ICBA), the nation's largest banking trade association, expressed the concerns of their members over FASB's proposed guidance known as Emerging Issues Task Force Issue No. 03-1-a, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments."
ICBA wrote that the proposed FASB accounting guidance would not give a truer picture of earnings but confuse and mislead financial statement users, as earnings would reflect losses that may not occur. "It appears to ICBA that virtually all community banks (along with many other financial institutions) will likely be affected by this accounting guidance," wrote ICBA. "Community banks question the need to recognize in earnings 'other-than-temporary' impairments that are due to interest rate changes on investments that they classify to indicate they may sell them, but also have the ability to hold them to maturity."
ICBA voiced the concern that the accounting rule will significantly impede community bank asset/liability and liquidity management practices, noting that, "Having investments that can be liquidated to meet loan demand or for deposit withdrawals is intrinsic to the business of banking." Community bankers believe that existing accounting standards for impairments give them the necessary flexibility to manage their portfolios, yet provide a better picture of the investment portfolio for financial statement users than this proposal.
Community bankers have mixed opinions over whether FASB should include a "bright line" test to identify a "minor impairment." Some community bankers believe such a test would assist compliance with the guidance, while others believe that each security must be analyzed for impairment. Virtually all believe the proposed 5 percent test level is too low. ICBA urged FASB to increase the proposed test level from 5 percent to at least 10 percent if it goes forward with that particular measure.
ICBA's full comment letter is available at www.icba.org/news_views/cl102904.html.