BOSTON The chairman of the U.S. House of Representatives Financial Services Committee said on Wednesday that he favors more flexibility in applying the way companies value assets, known as mark-to-market accounting.
Democratic Rep. Barney Frank said he has no plans to legislate accounting practices or to scrap the mark-to-market rule, which forces financial companies to value certain assets at their current market prices.
But he said he wants to make it easier for companies to apply the rule during the financial crisis.
"We will never legislate accounting," Frank told business leaders in Boston. But "there are modifications that we are looking at" related to mark-to-market requirements, he added.
Frank was particularly critical of aspects of the current rule that trigger automatic consequences when institutions mark the value of their assets in line with market conditions, which currently often reduce their value.
Banks can be forced to cut their lending activities when lower asset values shrink their balance sheets.
"I propose we not interfere with mark-to-market practices but not have the immediate consequences" they can trigger, Frank said.
Frank and other lawmakers are urging banks, especially those that received billions of dollars under the government's plan to recapitalize the banking system, to lend more.
Frank criticized U.S. Treasury Secretary Henry Paulson for failing to put conditions that would have forced the nine large U.S. banks that received the first $125 billion to lend money more quickly.
He was also critical of banks that use the money to make acquisitions, such as PNC Financial Services Group Inc (PNC.N). which agreed to acquire National City Corp NCC.N last week, instead of lending it out.
Frank added that financial institutions should distinguish between the securities they are holding on their books for a lengthy time and those they are offering for sale when applying the mark-to-market provision.
Frank, a key architect of the government's $700 billion rescue plan, repeated that the country needs a new stimulus package to breathe new life into the economy.
Such a package, which Frank said on Wednesday would likely total between $125 billion and $150 billion, would be designed to help states and cities, where jobs and building projects are now in jeopardy.
"We need to extend unemployment benefits and assist with infrastructure and construction projects," Frank said.
Frank was optimistic that the government would get back the $125 billion it used to recapitalize banks like JP Morgan Chase & Co (JPM.N) and Bank of America Corp (BAC.N).
But he said it may lose some money on the process under which the government buys up toxic assets from banks.
(Editing by Jason Szep and Gerald E. McCormick)