Banks Resist Balance Sheet Clean Up

Banks continue to resist a meaningful clean-up of their balance sheets, as a group of 16 institutions implored Treasury Secretary Timothy Geithner to a delay implementation of an accounting rule change that would force them to take off-balance sheet items onto their books.

In a letter dated June 1, the banks pleaded for more time and warned of the "far-reaching implications" of changes to FAS 140, which the Financial Accounting Standards Board, or FASB, quietly amended earlier this month, effective at the end of the year.

FAS 140 would eliminate qualified special purpose entities, or QSPEs. The special purpose vehicles allow banks to stash things like asset-backed securities and other unwanted assets, reducing the amount of reserves they need to hold. The QSPEs also are a great way to hide losses.

The banks, in their letter, used the same arguments made in the fight to water down FAS 157, which required banks to mark thinly traded assets to what they would fetch in the open market, in its letter on FAS 140.

Citigroup (C) had $822 billion in QSPE exposure last year, according to its annual report. JPMorgan Chase (JPM) had a whopping $640 billion. Bank of America's (BAC) QSPE exposure was a comparatively modest $81 billion and Wells Fargo (WFC) rounded up the group of four with $39 billion.

None of the banks would comment about the rule. FASB would not comment about the letter.

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