ETUDES FISCALES INTERNATIONALES , PATRICK MICHAUD

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Financial Accounting Standards Board

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From November 15, there  will be  a new tool for figuring out how much toxic waste is in investment banks' balance sheets.

RULE SFAS157

NEW    Une synthèse interessante  

 The new US accounting rule SFAS157 requires banks to divide their tradable assets into three "levels" according to how easy it is to get a market price for them. Level 1 assets have quoted prices in active markets.
At the other extreme Level 3 assets have only unobservable inputs to measure value and are thus valued by reference to the banks' own models. 

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Now, what we do know is that brokerages, banks, hedge funds, and other institutions are holding very complicated assets whose actual value has virtually vanished.

The key word here is actual, or real market value.

 But these level 3 assets are NOT being marketed to the real market!

They are being held, hidden on the books of major corporations and institutions, as management places their best-guess valuations that are almost always grossly overvalued!

Round 3 of the credit crunch will be the 'coming out' of sorts of the adjusted valuations of these level 3 assets leading to the uncovering of major losses to the most exposed corporations and institutions.

 this process will take months to play out