Magazine article American Banker

Top Lawmaker Seeks A Fuller Balance Sheet

Magazine article American Banker

Top Lawmaker Seeks A Fuller Balance Sheet

Article excerpt

Byline: Cheyenne Hopkins

WASHINGTON - Allowing mortgage-backed securities and other troubled assets to move off balance sheet helped fuel the housing crisis, a top lawmaker said Thursday.

Sen. Jack Reed, the chairman of the Senate Banking securities and insurance subcommittee, called for regulators to tighten controls of all off-balance-sheet assets.

"The securities packaged from these mortgages - many of them risky subprime mortgages - remained far from the view of investors, and less closely reviewed by regulators," he said during a hearing on the subject. "If we have learned anything from this recent mortgage mess - and I hope that we have - it is that we need more transparency in our markets, not less."

Regulators at the hearing largely agreed that more transparency is needed. One industry representative warned that moving some assets back on the balance sheet could result in more market instability and a loss of credit to consumers.

The hearing came days after the Financial Accounting Standards Board proposed a way to change how banks account for certain off-balance-sheet assets. Under the plan, which has drawn fire from the industry, FASB qualifying special-purpose entities could not be counted as off-balance-sheet assets.

Qualifying special-purpose entities is an accounting concept that allows institutions to account for certain assets, such as automobile loans, credit cards, and mortgages, as off-balance-sheet assets through securitization. By eliminating the classification, institutions would have to account for trillions of debt onto their balance sheets. FASB, which issued the proposal on Monday, left the plan open for comment until Nov. 14, and said it expected a new rule would take effect Nov. 15, 2009.

Sen. Reed said he supported the FASB plan.

"Now is the time to initiate these changes and to ensure they provide thorough transparency so that risks may be properly assessed," he said. …

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