Financial Accounting Standards Board Chairman Edmund L. Jenkins came under more heat from Congress Thursday over the controversial derivatives rule.
"Your job is not making rulings; your job is making a consensus," Sen. Phil Gramm, R-Tex., told Mr. Jenkins. "You have failed to do this."
It was the second time in two weeks that Mr. Jenkins has been called to Capitol Hill to explain this new rule. Following up on an Oct. 1 hearing, Rep. Richard Baker, R-La., and 22 other House Banking Committee lawmakers on Wednesday urged FASB to delay the rule's effective date until Jan. 1, 2000.
The rule would require companies to report derivatives at fair market value on quarterly income statements, starting Jan. 1, 1999. Banks have complained the accounting rule would distort earnings.
Regulators also have criticized the plan, including Federal Reserve Board Chairman Alan Greenspan who suggested derivatives' fair market values be reported in income statement footnotes.
At a Senate Banking securities subcommittee hearing, Mr. Jenkins defended the accounting board's actions, saying that the rule is "all about the public's right to know."
"We must avoid putting the interest of any particular group over the interest of consumers," Mr. Jenkins said. He argued that while FASB was only required to accept comment on the plan once, it has done so five times since 1991.
Democratic lawmakers also defended FASB. Sen. Christopher J. Dodd, D- Conn., described complaints that the accounting standard would harm risk management as "insulting."
Sen. Paul S. Sarbanes, D-Md., said the proposal would give investors a clearer picture of a company's derivatives holdings.
Other witnesses, however, argued that the plan would create problems for derivatives users.
Alex J. Pollock, president of the Federal Home Loan Bank of Chicago, said the accounting plan would discourage the use of derivatives, which would deprive mortgage lenders of an important risk management tool. This in turn could reduce the amount of mortgage loans, he added.
"If we want American families to be able to have long-term, fixed rate, pre-payable mortgages ... we have to have active hedging of these giant mortgage markets," Mr. Pollock said. He urged FASB to extend the proposal's implementation deadline. "Surely a $4 trillion dollar home mortgage market is worth another several months of deliberation."
Separately Thursday, the General Accounting Office released a 230-page report that found a large majority of derivatives users are satisfied with the sales practices of their dealers.
While allegations of improper sales conduct are rare, the parties in these disputed transactions often suffered "significant costs," the report said. Concerns about sales practices were raised in nearly 60% of 360 cases over the past 10 years where customers lost money; they lost $3.2 billion in these cases.
