The Impact of FSP FAS 157-4 on Commercial Banks

Abstract

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157). Later in 2008, U. S. banks were mired in a credit crisis. Many economists and bankers suggested that one cause of the 2008 credit crisis was the requirements of SFAS 157 and a movement began to have its provisions amended or rescinded. The result of this movement was the passage of FSP FAS 157-4. The purposes of this study are to chronicle the events that lead to the release of FSP FAS 157-4, to report on the impact of FSP FAS 157-4 for the quarter ending March 31, 2009 for a sample of banks and to investigate the characteristics of the banks that early adopted FSP FAS 157-4 as compared to the non-adopters. The results did not find the predicted income increasing effect and indicated that total asset size and financial asset size were significant factors in the early adoption decision.