After MFGlobal collapsed, there was a great deal of commentary on the accounting tricks that had been used to conceal the financial health of the company – moving the debt associated with the repo-to-maturity trades on European debt off of the balance sheets and out of the public eye. At the time, changing the accounting rules seemed like a long-shot, but as luck would have it, and Reuters reports:

The group that sets U.S. accounting standards proposed tightening an accounting rule that brokerage MF Global used to obscure its exposure to risky European sovereign debt ahead of its bankruptcy filing in 2011.

The change, proposed on Tuesday by the Financial Accounting Standards Board, would make it harder for a company to use a particular kind of repurchase agreement – a form of short-term borrowing – to move debt off its balance sheet. […]

MF Global used repo accounting to keep sovereign debt off its books, making the firm look less risky than it was.

“What the FASB has proposed has significant potential to close the accounting loophole that MF Global exploited,” said Bruce Pounder, a director of professional programs at SmartPros, which provides education to accounting professionals.

This isn’t a formal change yet, and there are concerns that the rules may become too complex to be effective. As the article explains, the general feeling is that those looking to get around a rule will usually find a way, but as we see it, that doesn’t mean rules are useless… particularly if it adds some transparency to firms conducting proprietary trading. It does make us wonder what would happen to the balance sheets of financial behemoths like Goldman Sachs and JPMorgan, though…