Accounting Rule That Made Weak Banks Look Healthier Ended
- Measure generated paper profits when banks' debt lost value
- At height of 2008 crisis, rule masked portion of firms' losses
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An accounting rule that propped up bank earnings when times were tough and hurt profit when markets improved was eliminated by the U.S. body that sets bookkeeping standards.
The debt-valuation adjustment, or DVA, will no longer be included in net income, according to revisions to the fair-value measurement standard published by the Financial Accounting Standards Board Tuesday. Firms can now report changes in the value of their debt as part of “other comprehensive income,” which isn’t part of the bottom line that analysts and investors watch most closely.