The House Financial Services Committee decided to soften language in a controversial amendment to the proposed Financial Stability Improvement Act that would have given a systemic risk regulator the ability to rewrite accounting standards.

The amendment, as originally proposed by Rep. Ed Perlmutter, D-Colo., would give a new Financial Services Oversight Council of banking regulators the ability to recommend that the SEC direct the Financial Accounting Standards Board to suspend, modify or eliminate any accounting principle, standard or procedure that threatens the stability of the U.S. financial system. The final version of the amendment says that the new oversight council can submit comments to the SEC on accounting principles, but the SEC and FASB would be free to accept or reject the suggestions. The amendment passed unanimously, according to Dow Jones Newswires, but the final bill itself has not come up for a vote yet in the committee.

The original amendment was strongly supported by the banking industry, but was heavily opposed by various accounting groups, including the American Institute of CPAs, the Center for Audit Quality, and the Financial Accounting Foundation, in addition to the Council of Institutional Investors and the U.S. Chamber of Commerce (see Perlmutter Amendment May Be in Trouble). They worried that the amendment would compromise the independence of the accounting standard-setting process by interposing an oversight board between the SEC and FASB.

However, Perlmutter insisted the council would only be involved in accounting issues with systemic risks. He said that accounting rule-making would remain with FASB, and FASB would continue to report to the SEC, and not to the new oversight council.

While accounting organizations can breathe a sigh of relief, the final legislation is still in a state of play. The American Bankers Association noted that even with the toned-down language in the amendment banking regulators will now for the first time be allowed to monitor accounting policies and comment on them.

In addition, the legislation coming out of the House Financial Services Committee regarding financial regulatory reform is being heavily lobbied by the banking industry and largely adjusted to Wall Street’s advantage, as The Nation recently reported, so changes are still likely in the bill before it gets voted on and sent to the floor of the House.

Another proposed amendment, from Rep. Scott Garrett, R-N.J., would authorize a study to be conducted of FASB Statement Nos. 166 and 167 and their impact on securitization accounting rules. The two FASB standards take effect in January and pertain to accounting for asset-backed securities and special-purpose entities.

Expect to see more adjustments going forward in this bill and others, as financial regulatory reform continues on its uncertain path.