SVB losses embolden calls for accounting rule reform U.S. accounting rulemakers are being urged to rethink how banks should value their assets such as hold-to-maturity (HTM) securities in financial statements, in the wake of the run on Silicon Valley Bank (SVB) and pressure across the regional banking sector. If banks designate bonds as held-to-maturity securities, the firms are allowed to exclude unrealized losses on them from equity as long as they don’t sell. If they do, they must reclassify all of their HTM securities as available for sale and potentially take a big loss on the securities they didn’t sell. SVB had designated 43% of its total assets as HTM securities, which fell in value and led to a buildup in unrealized losses as interest rates rose last year at one of the fastest paces in U.S. history. As the bank struggled to maintain its liquidity to fund withdrawals, SVB was able to avoid recognizing the losses by not reclassifying the HTM securities. Stephen Ryan, accounting professor at New York University, said: “Had SVB or any of the other affected banks been using fair value for their long-term market securities, they would have had to cope with the rises in interest rates as they occurred rather than putting it off until a stress point.” The CFA Institute, a professional body for investors, which campaigned vigorously for fair value rules in 2010, sent a new white paper to the FASB last week urging it to “eliminate ‘hide-’til-maturity’ accounting.” “You have to go to the fair value footnote and you have to put the pieces of the puzzle together,” said Sandy Peters, the CFA Institute’s head of global advocacy. “Depositors don’t do that. Silicon Valley Bank’s unrealised losses were bigger in September. The problem was that it wasn’t obvious. On March 8th, it became obvious.” Financial Times Wall Street Journal