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The
Fed To Watch Bank’s Balance Sheets More Closely By
Jeannine Aversa WASHINGTON
–– The Federal Reserve is keeping close tabs on financial
arrangements that might be used by banks to mask their true financial
positions, a Federal Reserve Board member said Thursday. Former
banker Mark Olson, in his first speech as a member of the Fed board,
said the use of certain financial arrangements to shift risk from corporate
balance sheets is worrisome. "They
can be used to give the appearance that a company has shed risk that
it has, in substance, retained," he said in remarks at a conference
on mergers and acquisitions in Miami. That, he said, "is not in
the spirit of accounting rules." A
copy of Olson's speech was distributed in Washington. Olson
mentioned no companies by name. In recent weeks, Bankrupt energy company
Enron Corp. and PNC Financial Services Corp. have generated controversy
and scrutiny over their accounting practices. Enron
created a host of partnerships to keep ballooning debt off the company's
public balance sheets. PNC Financial Services recently had to revise
its 2001 earnings downward after federal regulators said the bank needed
to change how it accounted for millions of dollars worth of loans. "Though
there does not appear to be a systematic problem with inaccurate treatment
by bank holding companies of sales of loans to off-balance-sheet special
purpose entities, in certain instances companies have not given appropriate
consideration to this accounting requirement," Olson said. Regulators
will endeavor to ensure that banks provide clear and accurate financial
information to the public that also meets generally accepted accounting
principles, Olson said. "The
Federal Reserve reserves the right to apply its own sound interpretation
of those accounting principles based on a careful consideration of the
underlying facts and circumstances and the economic substance of the
transactions," Olson said. "We
have exercised this right and will continue to do so when necessary
to ensure the transparency of an institution's risk profile and financial
condition through accuracy of its public financial statements,"
he added. –––
On
the Net: Federal
Reserve: http://www.federalreserve.gov |
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