Accounting rule makers are on the verge of rolling back a widely assailed provision that adds to U.S. banks' profits when their debt looks riskier to investors and penalizes them when it looks safer, the Wall Street Journal reported today. The provision—known as the debt or debit value adjustment (DVA)—has come under increasing fire as major banks posted quarterly results whipsawed by big gains one quarter and big losses the next as the market value of their own debt fluctuated. Major banks and securities firms have posted almost $4 billion in cumulative DVA gains over the past year, but big DVA losses are expected in the third quarter, including an anticipated $1.9 billion at Bank of America Corp., disclosed Friday. The Financial Accounting Standards Board, which sets U.S. accounting standards, tentatively agreed in June to strip the changes out of net-income calculations, which would prevent the DVA swings from affecting banks' marquee earnings numbers any longer. The board is expected to formally propose the move by the end of the year.
