OTTI: What it is and why you should care about it
Abstract: A crucial accounting issue for banks is the treatment of other-than-temporary impairment (OTTI) for investments. Under previous rules, assets that experienced OTTI were written down to fair value, with a corresponding charge to earnings. Many banks felt that this treatment was unfair, particularly for securities they had no intention of selling. In mid-2009, FASB issued guidance that changes the way these impairments are recorded for certain securities. OTTI can have a significant impact on bank earnings and regulatory capital, so it’s important to have policies and procedures in place for classifying securities, determining fair value, assessing securities for OTTI and measuring the credit and noncredit components.