US banks 'could have to boost loan reserves by 50%'

21 December 2012

US banks could see the amount of money they are required to hold in reserve for bad loans increase significantly, it has emerged.

The Financial Accounting Standards Board (FASB) yesterday (20 December) put forward a new proposal that would see the creation of a new model of accounting and would require financiers to adopt a "more timely recognition of credit losses".

In addition, the body's latest Proposed Accounting Standards Update indicated that banks should have to be more transparent with regard to their credit risk and has asked stakeholders to provide feedback on these measures by 30 April 2013.

Leslie Seidman, chairman of the FASB, observed: "The global financial crisis highlighted the need for improvements in the accounting for credit losses on loans and other debt instruments held as investments."

In a statement issued after the publication of this report, Mr Seidman added that America's largest banks are expecting their losses to go up by around 50 per cent after these changes are made.

By Claire Archer

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