For asset-liability management purposes, historical cost accounting better reflects the use of the available-for-sale portfolio to hedge this type of interest rate risk. We have always expected banks to regularly review the fair values of all their securities. But the concept of “tainting” due to realized losses from the available-for-sale portfolio had not been widely applied in such a narrow way.
I commend FASB for listening to questions raised by preparers, auditors, and bank regulators and for agreeing to defer the effective date of the impairment guidance in this interpretation. FASB has also issued some implementation guidance, and its comment period ran until October 29.