Quantifying The Cost Of FAS 166 And FAS 167: At Least $450 Billion Of Onboarded "Assets" With Citi #1 At $154 Billion
As lobbying attempts to eliminate or at least delay the implementation of FAS 166 and FAS 167 (as a reminder, these are the accounting rules that will force banks to onboard a lot of off-balance sheet assets) seem to have stalled, the next question becomes what the cost to banks will be as a result of this new change starting January 1. A research piece from Barclays attempts to do just that, and while presenting slightly improved results versus previous estimates, still provides a glimpse into why it has been so critical to pump up the stock prices of some of the most "at risk" financial companies. In a nutshell - the pain for the banks will be significant, to the tune of half a trillion dollars, with the usual suspects expected to take the bulk of the hit: Citi at $154 billion, followed by BAC $121 billion, JPM $100 billion and WFC at $48 billion.
If nothing else, this rule will provide some much needed transparency into the bank's still infinitely opaque and mismarked balance sheets. The biggest danger though, in our read, is that onboarding QSPEs and VIEs will make the re-launch of securitization that much more problematic. And keep in mind: without a fully functioning securitization market around the end of 2010/early 2011 when hundreds of billions in debt need to be rolled, this entire Fed-staged exercise in "financial stability" will have been for nothing.