What is a Loan Worth?
We are in the midst of one of the most acrimonious debates over accounting rules in decades. What is at stake is whether banks will have to value their loan portfolios and report the results on their financial statements. Currently, some of the information is in the company footnotes but not reflected in the actual financials. CFA Institute and a large majority of its members surveyed think it is high time to change this situation. The nation’s accounting rule maker, the Financial Accounting Standards Board (FASB), has proposed to do just that. As we might expect, the shrill cry from bankers is more than palpable, claiming it will ruin the industry, result in fewer loans to consumers, and bring a further pall over the financial system. Perish the thought they say, suggesting investors do not want such information and that it will be destabilizing.
Note to FASB and the banking industry: Investors do want it and they can handle the truth.