Morgan Stanley increased its use of historical cost accountingfor corporate loan commitments, joining Goldman Sachs Group Inc. inmoving away from the mark-to-market approach the firms had earlierused.

Morgan Stanley raised the amount of loans and lendingcommitments that it accounted for as “held for investment,” or HFI,to $9.7 billion in the fourth quarter from $800 million a yearearlier. Goldman Sachs decided to make the change to some of itscorporate loan book, the Wall Street Journal reported yesterday,citing people familiar with the matter.

Both New York-based firms had losses on relationship lendinglast year and face differing treatment from regulators between HFIand fair-value commitments. Fair-value accounting often requiresfirms to book losses on the commitments, even if they aren't tappedby the borrowers, while commercial bank competitors avoidmark-to-market declines by holding the commitments at historicalcost.

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