The Financial Accounting Standards Board will also be meeting Thursday to consider, among other things, issues related to mark to market accounting.

In a research note, Stewart Hall, economist at HSBC Securities (Canada) Inc., points out that FASB is expected to provide some guidance on mark to market accounting following the meeting.

“The good news is that any relaxation — regulatory forbearance — would take pressure off of financials being forced to aggressively write down assets that have been mouldering on balance sheets,” he notes.

“The ugly underbelly is that if the relaxation in regulatory requirements goes too far, banks lose the incentive to work off these assets and cleanse their balance sheets. In that instance, the story moves clear of ideas associated with creating good banks and bad banks and instead — as the nightmare goes — one ends up with zombie banks that resemble the oft studied lost decade that was Japan in the 1990s,” he warns.

“While direction and a relaxation of mark to market accounting and perhaps a return of mark to model accounting would reasonably be expected to provide a benefit, it is hard to cover up that which transparency has already revealed — a banking system that remains clogged with assets that until there is some palpable recovery in U.S. housing prices, will continue to bleed value and see write downs as opposed to entertaining the prospect of write ups,” Hall adds.

IE