Debate continues over bank accounting rules

WASHINGTON - As it delves into a highly charged area of debate in the financial crisis, the Securities and Exchange Commission heard opposing views Wednesday on whether accounting rules requiring banks to value their holdings at current prices should be changed.

The banking industry, devastated by the write-downs it has been forced to take on mortgage-linked assets since the collapse of the housing market, has been pressing the SEC to suspend the so-called "mark-to-market," or fair value, accounting rules. They require banks to put the assets on their balance sheets at current market prices even if they plan to hold them for years.

Buttressed by Republicans in Congress, the industry has been able to get the issue into the public spotlight as the global financial crisis has deepened and banks have foundered and failed. The new law setting up the $700 billion financial rescue plan includes an affirmation of the SEC's authority to suspend the mark-to-market rules and directs the agency to complete a study of the issue by Jan. 2.

The study will include a look at the rules' effect on bank failures this year, SEC Chairman Christopher Cox noted in opening remarks at a public forum on mark-to-market accounting organized by the agency.

Sixteen U.S. banks and savings and loans have failed so far this year, including Washington Mutual Inc., the biggest bank collapse in history. That is more failures than in the previous five years combined, and it's expected that many more banks won't survive the next year of economic tumult.

Illiquid markets, where distressed assets tied to mortgages find few or no buyers, "are bringing new challenges to the measurement of fair value," Cox said.

Proponents of the current accounting regime, including analysts and investor advocates, argue that suspending it would erode transparency in companies' financial statements and hurt investors and the capital markets. Don't blame the crisis on banks having to disclose the full extent of their losses, they say.

Despite imperfections, mark-to-market accounting "is the best method for providing the level of transparency" that investors crave, Vincent Colman, national professional practice leader at accounting firm PricewaterhouseCoopers, said at the SEC conference.

A policy group backed by the biggest U.S. accounting firms has warned against a suspension of the accounting regime. And Damon Silvers, associate general counsel of the AFL-CIO, said suspending mark-to-market would "make a complete hash of financial statements."

But William Isaac, a former chairman of the Federal Deposit Insurance Corp. who has been a vocal critic of mark-to-market rules, called them "a major cause" of the current crisis.

"I'm concerned about the economy and all the unemployment we're going to cause," he said Wednesday. "Our banks are the best capitalized banks in the world, by far, and we're destroying them."

Also arguing for putting the rules on ice was Aubrey Patterson, chairman and CEO of BancorpSouth Inc., who said accounting requirements should be relevant, reliable and reflect economic reality, "not drive it."

Patterson, whose regional bank is based in Tupelo, Miss., was representing the American Bankers Association, the industry's biggest lobbying group.

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