Corroborating Minimum Capital Rules with Accounting Rules for Financial Institutions

Özet

Through a lack of corroboration between the SOP 03-3 USGAAP rules and the FDIC-given impairment levels for banking portfolios available for sale, US banks are seeking P&L elsewhere from holding the loans to maturity, thus the rate of real estate foreclosures may be increasing. In addition, the incentive for bank mergers or buying impaired banking assets no longer exists leading to artificially depressed bank valuations and possibly stoking the continuation of the real estate crisis. This paper also argues that in declining asset value environments, a relaxation of capital rules is necessary to stimulate purchases of impaired banking assets.