A proposal to improve fair value accounting
The proposal offers four advantages for reporting losses on non-trading debt securities:
- Credit and non-credit losses would be reported separately and prominently in a redesigned income statement. This enhances transparency by providing more information about changes in fair value.
- Only incurred losses are recorded in net income. This is consistent with accounting for credit losses on loans and eliminates an inconsistency in how incurred losses are reported.
- Continues to report debt securities at fair value.
- Reduces effect of temporary market volatility on net income. Swings in earnings will be moderated in both falling and rising markets— essentially buffering the extremes of bull and bear emotion.