Courtesy of Mish.
Energy-Related Losses Mount
Bank loan loss impairments related to the energy sector are set to rise rapidly.
Banks have made drilling loans to companies that are only profitable at oil prices above $50. And the price of oil just closed under $30 for the first time in about 12 years.
Diving Into Rumors
Zero Hedge has an interesting post on Saturday entitled Dallas Fed Quietly Suspends Energy Mark-To-Market On Default Contagion Fears.
In his post, ZeroHedge claims “The Dallas Fed met with the banks a week ago and effectively suspended mark-to-market on energy debts and as a result no impairments are being written down. Furthermore, as we reported earlier this week, the Fed indicated ‘under the table’ that banks were to work with the energy companies on delivering without a markdown on worry that a backstop, or bail-in, was needed after reviewing loan losses which would exceed the current tier 1 capital tranches.”
Mark-to-Market Accounting History
You cannot suspend what has already been suspended.
On April 3, 2009, the Wall Street Journal reported FASB Eases Mark-to-Market Rules.
Suspension of mark-to-market account was one of the factors that ignited the stock market in Spring of 2009.
Wikipedia has these notes on Mark-to-Market Accounting.
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