Federal Banking Agencies Evaluating FASB's Accounting Proposals

The FASB's proposed amendments would remove the concept of a qualifying special purpose entity (QSPE) from FAS 140. This would require that variable interest entities previously accounted for as QSPEs under FAS 140 be analyzed to determine whether they must be consolidated in accordance with FIN 46(R). The amendment also would revise the criteria for reporting a sale versus a financing.

This has massive implications. Off balance sheet vehicles have been central culprits in allowing the banking system to become obscenely leveraged. The authorities are going to push back on unrolling this, as long as they can.