Accounting Board Delays Bond Rule

U.S. accounting rule makers on Wednesday agreed to delay a new rule that would have forced financial institutions to take a hit to earnings from unrealized losses on bond holdings.

Faced with a backlash from big banks and insurers, the Financial Accounting Standards Board said it would hold off implementing an accounting rule change for bonds until it can provide more detailed explanations addressing concerns of financial institutions.

The delay should offer relief for companies that trade in mortgage-backed securities, the type of bonds that would be most affected by the rule change, analysts said.

Fixed-rate bonds rise or fall in value with changes in market interest rates. The FASB rule would cover bonds that a financial institution owned but deemed “available for sale.”

The FASB agreed with staff recommendations that there should be a threshold at which a bond’s unrealized loss should be treated as being other than temporary. But board members were undecided as to the threshold level, which FASB staff suggested should be 5%.

Chief financial officers at companies such as Freddie Mac and insurer Allstate Corp. sent letters to FASB last month asking for changes in the rule.

Board members agreed to a 45-day public comment period and to postpone the application of the rule until further guidance is adopted.