The American Bankers Association has written to Treasury Secretary Henry Paulson calling on regulators to make several immediate reforms to mark-to-market and fair value accounting rules before banks have to file their year-end financial statements.

The letter came in response to comments that Paulson made in November in which he said, "Mark-to-market accounting is clearly pro-cyclical."

In his letter, ABA president Edward Yingling said the consequences of pro-cyclical accounting standards have been grave in the past year and he warned that a failure to change the accounting standards could undo much of the work of the Treasury's Capital Purchase Program.

"While the government makes millions of dollars available to increase capital, other policies simultaneously are needlessly, and wrongly, erasing billions of dollars of banks capital," Yingling wrote.

He suggested three actions that the Securities and Exchange Commission could take in the near term to help alleviate the bankers' concerns: (1) clarify that the accounting rules for other than temporary impairment are based on credit impairment; (2) clarify that the definition of fair value is based on willing buyer/willing seller rather than exit price; and (3) delay the implementation date for the new business combinations rules, which affect mergers and acquisitions.

The letter was simultaneously sent to SEC Chairman Christopher Cox, Federal Reserve Chairman Ben Bernanke, incoming Treasury Secretary Timothy Geithner, and Democrat and Republican leaders of the House Financial Services Committee and the Senate Banking Committee.

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