WASHINGTON (CN) – Banks will have an additional year to include asset backed commercial paper as risk-weighted assets on their balance sheets, according to new rules by the Federal Reserve and other financial agencies.
With these listed assets, banks will have to maintain higher capital reserves.
The switch is in response to two changes in accounting standards made by the Financial Accounting Standard Board. The changes require bank holding companies to consolidate certain assets into so-called variable interest entities which are means of consolidating minority positions in several companies into one entity.
Banks and bank holding companies must to provide additional disclosures about their involvement with variable interest entities and any significant changes in risk exposure due to that involvement, under two of the financial account standards. Banks will be required to disclose how their involvement with a variable interest entity affects their financial statements.
The major financial regulators originally had proposed to implement the new risk calculations on Feb. 1, but agreed to a two quarter delay, and a two quarter phase-in period, in response to the banking industry’s request for a three-year phase-in. The industry is afraid that increasing capital requirements will hamper their liquidity and ability to make loans.