Federal Deposit
Insurance Corporation

We respectfully send you a copy of a correspondence we recently sent to the ABA , SEC and FDIC concerning another possibility to consider for OTTI.  The middle to small bank tier of the existing banking structure is facing intense capital pressure caused by the erosion of capital from unrealized losses.  There are nine banks in our own group of affiliated banks ranging from $34 million to $970 million.  We ask you please consider this possible short term plan to alleviate the immediate pressure on capital, that will allow us to heal ourselves and get back to lending in our communities. 

Thank you for your time and consideration.

Joan Meyer
Founders Group Inc
Worth, IL 60482

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(To the ABA)

Thank you for inviting our comments and we thank the ABA for all the effort demonstrated so far. 

First, the SEC accomplished a major step in its recent press release by "redefining" the meaning of fair value.  By doing so, they made the existing guidance more applicable to market conditions that may exist beyond what we used to know as a normal market.  Our suggestion is that consideration for a modification to amend SFAS 115, 107, 157, 133 et al be started in the appropriate forums after the end of the year, in the normal course of business and include a thorough review to handle extraordinary market situations. 

The immediate action that must be taken however, is to suspend for a period of time, the application of mark to market in the form of OTTI. 

It is a convoluted, distressed and illiquid market that has put added pressure on the application of each of these accounting pronouncements.  The condition of today's market has created a "perception" of asset quality weakness that has tainted traded assets, not necessarily by their own inherent weakness, but in some cases simply guilt by association.  Because the accounting firms and regulators aggressively applied the OTTI guidance (even before the most SEC recent press release modification),  billions of dollars of capital have been lost.   

Our suggestion is that M to M accounting OTTI adjustments be suspended immediately.  This suspension could extend for a period of time, much like the increase in FDIC insurance, for perhaps no less than 24-36 months, giving the economy time to resolve the underlying issues of a lack of faith that contributes to the root of our problems today.  Only time will allow the Economic Stimulus package to do the good promised by its authors.  Only time will give the market a chance to stabilize.  Propose on our behalf, a period of time after which the moratorium will be reconsidered if necessary.  We believe companies should continue to value their assets under the SEC press release and report those values in their 10Ks, call reports etc. but not take a direct hit to capital during the moratorium period and continue to include these valuation differences in Other Comprehensive Income maintaining the valuation adjustment in the form of net unrealized losses. 

Inasmuch as the SEC definition of "fair value" has been significantly modified, OTTI adjustments taken this year should be reversed and posted to Other Comprehensive income.   A one time special adjustment. 

After the moratorium period expires, the revised and reconsidered treatment for OTTI could be implemented on a timetable to exclude consideration of the period in the market commonly identified as distressed and illiquid.  The clock starts after the moratorium and thereby gives additional time for the assets to demonstrate recovery if they are able to do so.  Making this change could cause some concerns but:

This approach negates the concern over disclosure - Other comprehensive income would still reflect a fair value in the balance sheet.

This approach negates concern over changing guidance too quickly - it doesn't force existing guidance to be scrap-heaped or revised without careful debate and consideration.

This approach negates the drain on capital - it stops the erosion of capital devastated by unrealistic market values that ignore the inherent value of the assets.

This approach gives back TIME - which is what almost every sector of the economy needs to heal itself.