Italy suspends mark-to-market accounting on eurozone bonds

Forget the BaFin naked short-selling ban (for a second).

Tuesday’s other desperate European regulatory act took place in Italy:

MILAN (Dow Jones)–The Bank of Italy Tuesday said Italian lenders holding European government bonds in their available-for-sale portfolio don’t have to take into account possible capital gains or losses on them, in a move to safeguard capital ratios.

The decision came after volatility on European government bonds skyrocketed in recent weeks following several rating agencies downgrades, temporarily affecting the capital ratios of Italian, as well as other European, banks.

According to Italian securities laws Italian banks must deduct all the losses linked to the value of those bonds, but can only partially book capital gains.

That’s right — in another echo of US regulatory actions during the financial crisis, the Italian central bank has decided to partially suspend some mark-to-market accounting.

Unsurprisingly, this has led to some criticism.

For example, from Bank of America’s Jeffrey Rosenberg (via Zero Hedge):

Count Bank of Italy’s decision to allow banks holding European government bonds in AFS portfolios to suspend mark to market accounting rules as the latest iteration of unintended consequences. By suspending the rules, inadvertently market uncertainty increases as confidence over the value of the holdings, exposures and hence capitalization erodes.

Viva Italiana trasparenza.

Oh wait.