Two proposed accounting rule amendments designed to increase investor confidence could end up having a large, negative impact on bank earnings, according to new research from consulting firm TowerGroup.

The firm says that proposed rules from the U.S. Financial Accounting Standards Board (FASB) governing asset securitizations could, if implemented, severely curtail the practice of packaging assets as securities and selling them as securities. “If the proposed amendments go into effect, these securities could be placed back onto lenders’ books and thus require significant increases in loan loss reserves – in turn requiring billions in capital,” TowerGroup says.

This could have a significant and negative impact on credit markets, the firm says, potentially costing banks over US$60 billion in annual earnings.

“While the proposed FASB amendments are intended to restore investor confidence in the mortgage market, TowerGroup believes the rules will have an unintended consequence of negatively impacting credit card profitability. This will, in turn, adversely impact consumers in two ways: reducing the amount of available credit; and increasing the cost of credit to consumers,” it predicts.

TowerGroup as that it expects the reduction in the availability of credit will have a material and negative impact on the U.S. economy, already teetering on the edge of recession.

IE