The American Bankers Association has written to the Securities and Exchange Commission demanding that it override the Financial Accounting Standards Board's guidance on fair value accounting.
"Given the importance of this issue, the impact it has on the crisis in the financial markets, and the seeming inability of FASB to address in a meaningful way the problems of using fair value in dysfunctional markets, we believe it is necessary for the SEC to use its statutory authority to step in and override the guidance issued by FASB," wrote ABA president and CEO Edward Yingling in a letter to SEC Chairman Christopher Cox. "Such action is necessary to meet the SEC's obligation to provide relevant, reliable and useful information to the users of financial statements."
FASB spokesperson Christine Klimek declined to comment. FASB issued the fair value guidance on an accelerated schedule last week in response to the credit crisis (see FASB Amends Fair Value Measurements). The board has been under pressure to relax its fair value accounting rules amid complaints that it is exacerbating the credit crisis by forcing banks to write down assets that they cannot properly value. The financial rescue bill includes a provision mandating that the SEC produce a study of the effect of mark-to-market accounting on the credit crisis, which the SEC plans to complete by January 2 (see SEC Begins Mark-to-Market Study).
Yingling argued that the FASB guidance is "too narrow and too complex to be used by either large or small banks." He also noted that Europe is already contemplating loosening the fair value standards. Fifteen European countries met in Paris over the weekend and produced a draft declaration of a response to the financial crisis. "Under current exceptional circumstances, financial institutions should be allowed to value their assets consistently with risk of default assumptions rather than immediate market value, which in illiquid markets may be no longer appropriate," said the declaration.
The ABA wants the SEC to override FASB's guidance "and replace it with guidance that clarifies that fair value in an illiquid market does not include forced or distressed sales." The group also wants the SEC to provide guidance on "other than temporary impairments" and to suspend the proposed guidance on accounting for securitizations. Yingling wrote that the SEC should "suspend work by accounting standards-setters on any projects that would require fair value in any future accounting standards pending congressional review of the study mandated by the Emergency Economic Stabilization Act."
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