Bank One Corporation - Page 227

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          historical transaction-based valuation or (2) the item had a                
          ready market in the form of an organized exchange so that the               
          cost of obtaining objective and verifiable pricing information              
          was minimal, as was the uncertainty about whether the reporting             
          entity could find a buyer.                                                  
                    4.  Change in Accounting Treatment                                
               Until recently, accounting for non-exchange-traded financial           
          assets had typically been on the basis of amortized cost.  For a            
          traditional fixed-rate loan, for example, the amortized cost                
          value of the loan would be (1) the original amount lent, net of             
          any repayments, plus (2) accrued interest at the contractually              
          specified rate.  With the exception of actual default, amortized            
          cost valuation was not sensitive to changing market conditions              
          such as changes in interest rates or changes in the asset’s                 
          credit risk.                                                                
               Financial innovation during the 1980s and 1990s created a              
          need for better information than reported by the traditional                
          transaction-based system.  With encouragement from the Securities           
          and Exchange Commission (SEC), the FASB began in the early 1990s            
          to consider greater use of market values in accounting for                  
          financial instruments.28  One concern with the transaction-based            


          28 Before 1990, financial accounting standards mentioned                    
          swaps only in the context of hedging.  Statement of Financial               
          Accounting Standards (SFAS) No. 52 mentions currency swaps used             
          as hedges to reduce risk from currency fluctuations and discusses           
                                                             (continued...)           




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