I agree with this new proposal. It is a lot more conservative than the current standard and I feel is safer for the economy. Currently, banks book losses only after they have been incurred. This is part of the reason for the recent recession and its severity. If the new proposal had been implemented back then, there would have been a bigger alert that something is wrong. Maybe, the recession would not have been so severe if this standard was in place instead of the incurred loss standard. Banks would have been able to project that they were going to incur losses and have been able to to re-finance the loans or something else. I feel that this new standard will help prevent future problems and may curtail banks’ risk taking because of the acceleration of booking losses. I think this proposal is very good and should have no problem becoming a standard. What do you think?
Here’s the article, http://online.wsj.com/article/SB10001424052970203733304577102650251402654.html
U.S. and international accounting rule makers have agreed in principle on a new standard for recording loan losses that may require banks to book some losses more quickly. The new rules would require banks to forecast losses on their books in a category known as “expected losses,” under which they would book losses and set aside loan-loss reserves based on future projections of losses. That would differ from the current system, known as an “incurred-loss” model, which requires evidence that a loss actually has occurred before the loss can be recorded.
I believe this is a very wise move as it will force banks to be more conservative in their financial outlooks. This will help investors, analysts, and regulators get a more accurate view of how the company is doing.
OKAY, you both agree that this would be good. Then why didn’t the FASB and SEC do this a long time ago?