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Bernanke urges "improvements" in mark-to-market
March 10, 2009 / 1:30 PM / 9 years ago

Bernanke urges "improvements" in mark-to-market

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke called for “improvements” in mark-to-market accounting rather than suspending the controversial accounting standard, which has forced banks to take billions of dollars in asset writedowns.

Bernanke made his comments on Tuesday, two days before a House Financial Services subcommittee is scheduled to meet to consider possible incremental changes to the accounting rule.

Rumors have circulated this week that the U.S. government was planning a temporary suspension of the accounting rule, which requires financial services companies to value assets at current market prices even in illiquid or frozen markets.

Mark-to-market accounting is defended by investor advocates for giving investors a clear picture of banks’ assets.

But business groups have been pleading with the SEC and the Financial Accounting Standards Board to suspend or amend the rule so banks can account for hard-to-value assets more favorably amid distressed markets. The banking industry says the rule is undermining the federal government’s $700 billion program to stabilize the financial industry.

The U.S. Securities and Exchange Commission, which oversees and enforces accounting policy, is “not planning a suspension,” of mark-to-market, a source familiar with the matter told Reuters. The source was not authorized to speak on the matter and requested anonymity.

Bernanke said he opposed suspending mark-to-market accounting, but did think there was room to improve the rule.

“Given what is going on in the world, we should look to identify the weak points of mark-to-market and try and make some improvements on a more expeditious basis,” Bernanke said in response to an audience question following a speech to the Council on Foreign Relations.

“We need to do a lot more to provide guidance to the financial institutions and to the investors about what are reasonable ways to address valuation of assets that are being traded or if traded at all in highly illiquid, fire-sale type markets,” Bernanke added.

Ahead of the Congressional hearing on Thursday, dozens of business groups and federal home loan banks expressed their concerns to the top lawmakers on the full House Financial Services Committee.

“Appropriate changes in mark-to-market accounting should not wait until mid-year or year-end,” said the letter addressed to Barney Frank of Massachusetts, the Democrat who chairs the committee, and Spencer Bachus of Alabama, the committee’s top Republican.

“That will only allow the spiral of accounting-driven financial losses to continue,” the letter said.

The letter, dated March 9, was signed by some of the biggest industry groups, such as the U.S. Chamber of Commerce and the American Bankers Association as well as a number of federal home loan banks.

The hearing chaired by Pennsylvania Rep. Paul Kanjorski will try to find “fair-minded, incremental and achievable fixes” to the mark-to-market accounting rule, the lawmaker said last week.

Separately, the top Republican on the Senate Banking Committee, Richard Shelby of Alabama, also said he opposed easing the mark-to-market rule.

“Accounting rules should be designed to ensure that a firm’s disclosures reflect economic reality, however ugly that reality may be,” Shelby said at a committee hearing on investor protection issues.

“Changing the accounting rules now will simply compound investors’ wariness about investing in a market where many firms have bad or illiquid assets on their books,” Shelby added.

The SEC and the Financial Accounting Standards Board have said they are working on more guidance to help banks determine the value of an asset in illiquid markets.

Reporting by Rachelle Younglai, editing by Lisa Von Ahn and Tim Dobbyn

Our Standards:The Thomson Reuters Trust Principles.
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