To garner permanent equity status for the warrants, the clarification letter laid out conditions: The issuer must have sufficient authorized, but unused, shares of the class of stock that may be required upon settlement, and obtain any other shareholder approvals needed, explained Willens. Even if the two conditions are not satisfied by the time the warrants are issued, the SEC and FASB agreed to give banks a second chance to claim permanent equity status by taking "necessary action" to secure shareholder approvals prior to the close of the fiscal quarter in which the warrants are issued.

This is not the first accounting guidance released to help banks bolster their liquidity. Last month, the Treasury Department revealed that a provision of the Emergency Economic Stabilization Act — the law that established TARP — gives participating banks more leeway than usually permitted under U.S. GAAP to recognize tax benefits sooner. The law allows banks that invest in the beleaguered mortgage lenders Fannie Mae and Freddie Mac to get a tax break on the preferred shares they get in exchange for the investment. Specifically, banks can treat the subsequent gains or losses thrown off by the preferred shares as ordinary income or losses, rather than as capital gains or losses.

That is an important incentive because ordinary losses are more easily offset than capital losses, which can only be offset by capital gains. Ordinary losses may be offset by any income generated by the company's business.

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