Members of the Financial Accounting Standards Board came under pressure to relax fair value accounting rules when banking regulators would not change their capitalization requirements. FASB decided to loosen rules that kept banks from accounting for the cash flows they expected from mortgage-backed securities and other assets during impairment tests when they are categorized as available for sale, rather than just as held to maturity.

"I don't understand why we would be necessarily addressing impairment in this isolated instance," said board member Thomas Linsmaier during a Dec. 15 FASB meeting, according to Financial Week.

Another FASB member expressed frustration with banking regulators expecting FASB to modify its rules instead of loosening bank capitalization requirements. "I was particularly frustrated discussing with banking regulators their apparent unwillingness to consider changes to regulatory capital based upon disclosures that we might consider putting into financial statements," said FASB member Lawrence Smith, according to FW.

However, Linsmeier (pictured) pointed out that SEC Chairman Christopher Cox apparently wanted an emergency decision on the rule change, based on his comments about fair value at a speech during an American Institute of CPAs conference. The speech has also been seen as a defense of fair value accounting (see Not the Right Time to Soften Accounting Rules).

"I think we're talking about this because Chairman Cox suggested at the AICPA meeting last week that the SEC sees fair value as an area we should be looking at," he reportedly said. "I am greatly concerned that the reason we're getting pressure to do this is the preparer community doesn't want to recognize losses." FASB issued the proposed rule changes on Dec. 19, limiting the public comment period to 10 days and allowing banks the opportunity to reduce fourth-quarter losses on their year-end financial statements.

FASB said that the proposed FASB Staff Position, EITF 99-20-a, "Amendments to the Impairment and Interest Income Measurement Guidance of EITF Issue No. 99-20," is intended to reduce complexity and thus achieve more consistent determinations of whether other-than-temporary impairments of available-for-sale or held-to-maturity debt securities have occurred.

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