Tuesday, December 17, 2013

"Hold to maturity" or "Available for Sale"

FT.com has a story about the effect of Volcker Rule.  It does not make clear why the rule requires the re-classification.  In any case, it highlights one way that accounting classification can affect the value of assets and the capital required to support those assets:

"financial officer, told analysts on a conference call, the bank is reclassifying the CDOs from “held to maturity” (HTM) to “available for sale” (AFS). Gains and losses on securities that are held as AFS feed into financial companies’ regulatory capital ratios under incoming Basel III rules.  Zions estimated that reclassifying its portfolio of CDOs to AFS would result in its tier one common equity ratio falling from 10.47 to 9.74 per cent."

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