U.S. accounting standard setters on Thursday proposed a revamp of a rule that allows banks to record higher profits when the value of their debt deteriorates, a standard criticized by some as confusing and counter-intuitive.
The Financial Accounting Standards Board (FASB) proposal is part of a broad effort to change how banks measure their assets and bring U.S. financial reporting, now different in many ways from that of other countries, closer to international standards.
The proposed rule would end big swings in bank earnings that resulted when the value of their own debt changed.
FASB is seeking comment on the proposal through May 15. It did not give an estimated date for implementation.
Currently, banks can use fair value, or market-based prices, to measure their own debt. Changes in those values get booked in their earnings.
The rule is based on the idea that when a bank's debt becomes less valuable, it can be bought back at a lower price.
That reduces a banks' liabilities.
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