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FASB commits to expedited mark-to-market guidance
WASHINGTON (3/13/09)—At yesterday’s House subcommittee hearing on mark-to-market accounting, the chairman of the Financial Accounting Standards Board (FASB) committed to expediting guidance on that accounting rule and to having it out within three weeks. That pledge came in response to a demand by Chairman Paul Kanjorski, of the House Financial Services subcommittee on capital markets, insurance and government-sponsored enterprises, which conducted the hearing. Kanjorski said he wanted FASB to work more quickly toward meaningful changes. FASB Chairman Bob Herz said, however, that the guidance likely may simply advise practitioners on how to best apply the mark-to-market accounting standard in an illiquid market. Several subcommittee members threatened legislative change if the FASB does not act expeditiously enough. The hearing included testimony from bank regulators, accounting standard-setters, and private investor representatives. The requirement to mark assets to market comes from U.S. Generally Accepted Accounting Principles (GAAP), which federal banking regulators must generally follow. In his opening remarks, Rep. Barney Frank (D-Mass.), who is chairman of the parent financial services committee as well as a subcommittee member, noted that prior to the savings and loan crisis banking regulators had much more flexibility in applying accounting rules. He added that “it is very important that the (Office of the Comptroller of the Currency), and the other banking regulators that are absent today, consider adding back the discretion that was taken out years ago.” Reps. Frank, Ed Royce (R-Calif.), and Gary Ackerman (D-N.Y.) each asked Deputy Comptroller Kevin Bailey, of the Office of Comptroller of the Currency (OCC), what legislative action would be required for the OCC to ignore mark-to-market. Without directly responding, Bailey noted that banking regulators currently do have some flexibility when it comes to following accounting rules. “While the federal banking agencies use GAAP as a starting point in determining inputs to the regulatory capital rules, there are many important deviations that arise from the different goals of financial reporting and prudential regulatory capital requirements,” noted Bailey in his supplemental statement. Several Representatives, as well as panelists, mentioned the possibility of separating the impairment of an asset due to credit losses from losses due to liquidity; a proposal supported by the Credit Union National Association in its formal statement submitted for the hearing. (See related story: CUNA: Congress should direct new look at mark-to-market.) Kanjorski said he will hold a follow-up hearing after the Spring District Work Session to discuss the progress the FASB has made.

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