Keep accounting separate from U.S. bank regs-FASB

* Rules on capital should be kept separate-FASB chairman

* GAAP should be "baseline" for bank health-FASB chairman

By Emily Chasan

NEW YORK, Oct 29 (Reuters) - Bank and securities regulators should "clearly delineate" their efforts to maintain economic stability from accounting rulemaking, the top U.S. accounting standard setter said on Thursday.

Robert Herz, chairman of the U.S. Financial Accounting Standards Board, said regulators should separate their rules on regulatory capital requirements designed to maintain economic stability from accounting rules designed to promote transparency.

"Both are essential public policy goals," Herz said in comments to the New York Society of Security Analysts.

Regulators should use U.S. Generally Accepted Accounting Principles (GAAP) as a "baseline" to evaluate bank health, rather than a primary measure, he said.

U.S. accounting rulemakers have been blamed by many investors and financial industry experts for accelerating the financial crisis by requiring a broader use of "mark-to-market," or "fair value," accounting that required companies to put a market value on financial instruments.

As credit markets froze last year, banks blamed the rules for setting off a downward spiral of writedowns that reduced regulatory capital levels, spurring further writedowns and fire sales of assets.

Herz said that while accounting rules are not necessarily designed to decrease financial stability, investors should get a transparent view of what is happening economically from accounting.

Citing concerns from previous financial crises where accounting rules may not have been transparent enough, Herz said "fair value might have provided an early warning" and contributed to investor confidence in a recovery.

He said it is up to the bank regulators to set regulatory capital levels and adjust them in up or down markets. (Reporting by Emily Chasan; Editing by Tim Dobbyn)