Today, the Financial Accounting Standards Board (FASB) met to consider adjustments to its mark to market rules:
FASB agrees the objective of mark-to-market accounting is still what would be received in an orderly transaction in the current inactive market.
FASB says an ‘orderly’ transaction does not include forced liquidation or distressed sale.
FASB agrees to remove presumption in mark-to-market accounting rule that all transactions in an inactive market are distressed unless proven otherwise.
What does this mean? It means that when an asset such as a mortgage security, has no market, no willing buyers, that the banks which own such assets do not need to price them at firesale prices. This gives banks more flexibility in valuing the assets on their books and for what it’s worth the market reacted positively on hearing the news.