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A push for new bank accounting rules

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Kai Ryssdal:This comes a little bit out of left field, but have you read any good financial statements lately? I ask because some banks that used to seem kind of shaky have been looking better based on their latest books. But we learned the hard way the past couple of years that you can’t necessarily, take those books to the bank. So corporate-accounting rule setters are suggesting it’s time for a change.

Here’s our senior business correspondent Bob Moon.

Bob Moon: Buried in Bank of America’s financial statement is a footnote: Loans it includes in its bottom line might actually be worth $24 billion less, if it had to sell those assets today. At Wells Fargo, the shortfall could be $21 billion.

Under current rules, the banks aren’t required to show the current market value of their outstanding loans in their bottom line. So investors have to try to figure out the fine print.

John Hepp follows accounting standards at the auditing firm Grant Thornton.

John Hepp: It takes a much higher level of understanding to read a financial report with these types of numbers in them. We sort of invented this other category, “other comprehensive income” — or incomprehensible income, as some people call it.

That kind of confusion has gotten the blame for the jitters that crippled the credit markets. Neal McGarity speaks for the rule-making Financial Accounting Standards Board.

Neal McGarityLack of clarity and timely information about the correct value of loans wasn’t helpful.

The banking industry argues it’s already putting mark-to-market estimates in financial reports. And Donna Fisher of the American Bankers Association says the proposed rule would require banks to report a bottom line based on guesswork.

Fisher: We go out and figure out what someone else would pay us for that loan.

Fisher warns that could cause banks to shun long-term loans in favor of less volatile short-term lending. And shrinking their bottom lines would require banks to keep more cash reserves, leaving them with less to lend.

Supporters of the approach, on the other hand, say keeping more cash on hand wouldn’t be such a bad thing, if it helps make the banks stronger.

I’m Bob Moon for Marketplace.

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