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Potential fair value changes concern Fed Reserve gov.
WASHINGTON (9/16/09)--Federal Reserve Governor Elizabeth Duke this week expressed concern regarding whether or not financial institutions would be able to adequately comply with a potential new fair value rule, stating that the Federal Reserve has “very little actual experience in fair-valuing liabilities." Speaking on her own behalf at the American Institute of Certified Public Accountant’s conference on Banks and Savings Institutions, Duke said that it is “frustrating” to assess “the viability of individual financial institutions and the financial system as a whole” when the worth of an asset “is based on the nature of its acquisition rather than the way in which it is managed or the way in which its economic value is likely to be realized.” According to Duke, fair value has “relevance” in situations where business models are “predicated on the trading of financial instruments.” Increased use of fair value accounting “could create disincentives for lending to smaller businesses whose credit characteristics are not easily evaluated by the marketplace,” Duke added. Financial Accounting Standards Board Chairman Robert Herz recently disclosed that the agency plans to issue a broad-based exposure draft on fair value accounting around the end of this year. While Herz has not discussed the exposure draft in great detail, he said that the exposure draft would address fair value accounting rules for all financial instruments, including allowances related to loan loss accounts, adding that the board would provide the industry with the time needed to comment on the proposal once it has been issued. Any changes, if approved, would not go into effect until 2011, Herz added. The Credit Union National Association will discuss fair value and other matters of concern to credit unions during a Sept. 17 conference call with Chairman Herz.


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