With the advent of FASB 115, it became increasingly common for companies to pursue buy and hold-to-maturity strategies in order to avoid the impact on profit-and-loss statements often associated with active trading.
Coincident with the introduction of FASB 115, the decade of the '90s also saw the rapid rise of the so-called "New Economy," which was fueled primarily by the booming technology sector.
Each time an entity undertakes an obligation to service financial assets it should recognize either a servicing asset or a serving liability for that servicing contract, unless it secures the assets, retains all of the resulting securities, and classifies them as debt securities held-to-maturity in accordance with FASB 115, Accounting for Certain Investments in Debt and Equity Securities.
Interest-only strips, loans or other receivables, or retained interest in securities that can conceptually be prepaid or otherwise settled in such a way that the holder would not recover substantially all of its recorded investment, should be subsequently measured like investments in debt securities classified as available-for-sale or trading securities under FASB 115.
As with all trading activity, market-driven portfolio adjustments may result in increased transaction charges and jeopardize a FASB 115 "buy and hold" classification.
transaction basis Invoiced monthly or quarterly Typical Portfolio 12 to 30 months Overnight to 18 months Duration Maximum Maturity 3 to 5 Years Overnight to 5 years (Any One Issuer) Minimum Credit Generally "A3/A-" or Generally "A2/A" or Quality better better FASB 115 Available for sale Hold to maturity or available for sale Primary Goal Principal preservation Principal preservation Emphasis Total return over Fully accrued earnings appropriate benchmark index Portfolio Attribute Notes Trading Activity Passive management -- less flexible in pursuing returns relative to benchmark indices.
(For more details, see "FASB 115
: It's Back to the Future for Market Value Accounting" JofA, Sept.93, page 49.) It requires companies to classify all securities investments that are not accounted for under the equity method into three categories: trading, available for sale or held to maturity.