Decouple US accounting rules, bank regulation-FASB

* Herz: Bank regulator needs should not trump investors

* Bank regulators cannot be handcuffed to GAAP rules

WASHINGTON, Dec 8 (Reuters) - U.S. accounting rules must be pried apart from bank regulation to maintain investor confidence in capital markets, the top accounting rule maker said on Tuesday.

“Handcuffing” regulators to accounting rules or “distorting” them to always fit the needs of regulators is inconsistent with financial reporting and banking supervision, Financial Accounting Standards Board Chairman Robert Herz said at an industry conference.

Banking regulators rely on U.S. Generally Accepted Accounting Principles (GAAP) to help determine how much capital a bank must hold to protect against losses. Regulators such as the Federal Reserve supervise banks to ensure their safety and soundness and the overall stability of the financial system.

But those goals sometimes clash with accounting standards, which are designed to communicate a company’s financial reports in a reliable and accurate way to investors. That window into a company’s business helps investors make decisions on where to allocate their capital.

“In dire situations, bank regulators may be appropriately concerned that public release of data on severe losses and asset impairments could spark a run on the bank,” Herz told the American Institute of Certified Public Accountants conference. “But investors would likely want to know the extent of the problems on a timely basis.”

Amid the worst financial crisis in decades, Herz was pressured by Congress to ease FASB’s fair value accounting rule that forced banks to write down billions of dollars in assets to show what they would fetch in current market conditions. FASB also issued guidance in April that would let lenders take smaller losses on impaired assets such as mortgaged-backed securities.

Herz has since denounced what he described as political interference with accounting standards and said lobbying by special interests undermines public confidence in the integrity of financial reporting.

On Tuesday, Herz said banking regulators have tools other than accounting rules to address a bank’s capital adequacy, liquidity and risks.

“The reporting to investors should not be subordinated to the needs of regulators,” Herz said. “To do so could degrade the financial information available to investors and reduce public trust and confidence in capital markets.”


* Accounting boards mull fair value views [ID:nN26201049]

* ANALYSIS-Global accounting drive slows [ID:nLD435129]

* FASB issues mark-to-market guidance [ID:nN09312013] (Reporting by Rachelle Younglai; editing by Andre Grenon)