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FASB Rules Out Changes to HTM Securities Standards

By:
S.J. Steinhardt
Published Date:
Dec 26, 2023

Despite a string of bank failures in 2023, the Financial Accounting Standards Board (FASB) has decided not to make changes to how companies account for held-to-maturity (HTM) securities, The Wall Street Journal reported.

Under existing accounting rules, companies can report different amounts for the same debt securities depending on what they say they plan to do with them. Companies, typically banks and other financial firms, can designate bonds as HTM securities and are allowed to exclude unrealized losses on them from equity as long as they do not sell. Banks have to carry HTM instruments at amortized cost, or an adjusted version of the original price they paid. 

Debates over changing the rules have occurred over the years after financial crises, such as the savings and loan scandal of the early 1990s, the events of 2008-09 and, most recently, the collapse of Silicon Valley bank earlier this year, The Journal reported.

The Board decided last week that it would not add a project on “Eliminating the Held-to-Maturity (HTM) Classification for Debt Securities.”  Board members told The Journal that many investors have the information they need on these securities in the footnotes. “I don’t think there’s a problem to solve,” Board member Susan Cosper said. 

The Board also decided not to explore allowing firms to apply accounting rules around hedging of interest rate risk to these securities. 

FASB discussed the issues in response to an April letter from the Council of Institutional Investors, which represents pension funds and other large money managers. CII at the time asked the FASB to consider doing away with the HTM classification and mandating more robust disclosures about liquidity risk and interest-rate risk. 

“We believe amortized cost measurement fails to provide information about key risks such as liquidity, interest-rate sensitivity, asset liability duration mismatches,” CII General Counsel Jeff Mahoney wrote in the letter, according to The Journal. 

“We believe amortized cost measurement fails to provide information about key risks such as liquidity, interest-rate sensitivity, asset liability duration mismatches,” CII’s general counsel, Jeff Mahoney, said in the April letter. 

Some board members told The Journal that they would consider HTM-related disclosure issues as part of a broader project on risk management. 

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