Subprime Crisis Not Seen Changing Accounting Rules

By Emily Chasan

NEW YORK (Reuters) - As banks reel from massive U.S. subprime losses, some experts argue that creating transparency in the market would be more effective at restoring public confidence than changing accounting rules.

"The regulator's tools for the most part are disclosure," Roel Campos, former U.S. Securities and Exchange Commissioner (SEC), said at the International Federation of Accountants' World Accountancy Forum in New York on Tuesday.

"I don't know that it is appropriate to expect regulation, regulators, and standard setters to essentially prevent the next restructuring or subprime mortgages," he said in response to a question from Financial Accounting Standards Board Chairman Robert Herz.

"Maybe there is a different way of thinking about the risks in the system and how to govern the financial system," Herz told the forum. "I don't know where the balance is, but we're somehow not getting it right."

Loose lending standards, rising interest rates in 2005 and 2006, and falling house prices led to an increase in the number of less-credit-worthy U.S. borrowers and contributed to a U.S. housing market slump.

Thousands of Americans with weak credit who obtained so-called subprime mortgages have defaulted on their loans and lost their homes.

Herz said he felt the subprime issue had damaged the reputation of U.S. capital markets.

"I have to tell you, when I go abroad nowadays, we're losing credibility," Herz said. "After these two last episodes (Enron and subprime) it doesn't play on Main Street anymore and it doesn't play in foreign capitals."