Magazine article American Banker

Spurred by Rule, Banks Seen Marking 70% of Portfolios as Available for Sale

Magazine article American Banker

Spurred by Rule, Banks Seen Marking 70% of Portfolios as Available for Sale

Article excerpt

A major shift in bank securities portfolios is expected by the end of the year as bankers respond to two key edicts this month from the Financial Accounting Standards Board.

An average of 70% of securities could be classified as "available for sale," up from 40% today, experts say, as bankers seek to maintain funding flexibility under the new FASB rulings that are part of an initiative to give investors a more accurate picture of an institution's worth.

On Nov. 15, the standard-setting board issued a rule allowing institutions to move securities from "held to maturity" to "available for sale" before the end of the year. The one-time adjustments can be done without forcing the bank to revalue all securities in its held-to- maturity category.

The board also formally issued a draft of a proposed rule eliminating some of the advantages of securitizations and long-term repurchase agreements. Under the proposal, a securitized borrowing that extends over 90 days will be treated as a purchase and sale.

The actions already are having an effect. Lamar Ball, chairman and chief executive of $1 billion-asset First State Bank of Texas, Denton, said he expects to take advantage of the new rule to make a larger share of his securities portfolio available for sale.

"I think it's probably going to work out that we'll have a 70-30 split," said Mr. Ball. Previously the bank had maintained an even split between the two accounts.

The 70-30 split will become the norm by the end of the year, said Fred D. …

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