Lawmakers urge SEC to suspend fair value accounting

By Rachelle Younglai

WASHINGTON (Reuters) - A group of more than 60 U.S. lawmakers from both political parties on Tuesday urged the Securities and Exchange Commission to take more drastic measures to help out the ailing financial sector by suspending its fair value accounting rule.

The SEC told banks on Tuesday they do not have to use fire sale prices when evaluating their hard-to-price assets, a move quickly praised by the Financial Services Roundtable and other lobbyist groups.

But that was not enough for a group of lawmakers including Representatives Jeb Hensarling of Texas and John Shadegg of Arizona from the Republican side and House Democrats Marcy Kaptur of Ohio and Peter DeFazio of Oregon.

In a letter addressed to SEC Chairman Christopher Cox, the lawmakers urged the agency to suspend the accounting rule immediately and replace it with a rule that more accurately reflects what they called the "true value" of assets.

Fair value, also known as mark-to-market or FAS 157, requires financial firms to value assets based on what they could fetch in a market transaction -- a requirement favored by most investors and accountants to give a true picture of companies' financial statements.

When there is no market, the hardest-to-value assets are often based entirely on management's best estimate derived from mathematical models.

Banking groups and lawmakers have partially blamed fair value accounting for forcing U.S. banks to take big write-downs on the value of assets affected by the credit crunch.

Suspending the accounting rule, the lawmakers said, would help unfreeze U.S. credit markets without forcing taxpayers to buy troubled assets as envisioned in a $700 billion bailout plan rejected in a House vote earlier this week.

"The mark-to-market rule, while well intended, has the unintended consequence of exacerbating economic downturns by hamstringing the ability of banks to make loans to consumers and businesses," said the letter, dated September 30.

The SEC should replace it with "a mark to value mechanism," the lawmakers said. "Until such guidance is issued, the fair value of these assets should be estimated using the best available information of the instrument's value, including the entity's intended use of that asset from the point of view of the holder of that instrument."

The letter was released as the U.S. Senate agreed to hold a vote Wednesday night on a bailout package that will also include boosting the amount of bank deposits that can be insured by the Federal Deposit Insurance Corp.

Hensarling, a member of the House Financial Services Committee, was one of the most vocal opponents of the $700 billion financial bailout bill.

The letter was signed by 63 House members and two senators, Republicans Tom Coburn of Oklahoma and Jim DeMint of South Carolina.

During the previous set of bailout negotiations, a group of House Republicans led by Hensarling pressed for language that would require the SEC to suspend FAS 157 until the agency could issue new guidelines that would allow firms to account for the "true economic value" of the assets.

(Editing by Gary Hill)