WASHINGTON-Against the odds, CUNA continues to lobby policymakers for some kind of relief from fair value accounting rules, which have been cited by many as one of the major causes of the current financial crisis.
Many experts are criticizing the rules that require entities to mark to market, that is, the current fair value, of distressed holdings.
For many of these holdings, for instance investments like private label mortgage backed securities, or distressed home equity loans, there is no active market, driving down the reportable values and exacerbating the financial balance sheets at credit unions, among others.
CUNA is asking key lawmakers for help in alleviating some of the pressures of fair value accounting rules.
"The application of these accounting rules is eroding capital at some credit unions, and we urge Congress to step in now to prevent further declines in credit unions' net worth as a result of the impact of these rules," said CUNA President Dan Mica in a recent letter to Sen. Chris Dodd, the Connecticut Democrat who chairs the Senate Banking Committee.
Mica told Dodd a number of credit unions have experienced significant reductions in their capital as a result of the application of fair value (mark-to-market) accounting to MBS and other assets in the currently volatile market.
"Because of the current illiquid market conditions, the difference in these values can be substantial and result in charges to earnings that represent unnecessary and overstated capital reductions," wrote Mica. He pointed out that all credit unions over $10 million in assets are required to comply with generally accepted accounting principles, or GAAP, and thus fair value accounting.
"In light of the current uncertainties in the financial marketplace and the likelihood that the present upheaval in the markets will continue for some time, we urge Congress to act," he continued.
"One step would be to direct the Securities and Exchange Commission, under the new chairman, and the Financial Accounting Standards Board to refine "fair value" for periods when an active market for a security does not exist."
Any change in fair market accounting rules would be a big help to corporate credit unions, which have seen market value losses on their holdings mount to an estimated $18 billion, as the markets for their assets backed securities have evaporated. Even though the corporates have indicated an intention to hold many of these securities to maturity, which would allow them to realize their full book value, the accounting rules require them to report the diminution in value for the vast majority of these holdings, those marked "available for sale."
Both the SEC and the FASB, which sets the rules for GAAP, have been reluctant to tinker with their rules on fair value accounting, even as market value losses continue to pile up at financial institutions.
Similar requests by CUNA and NAFCU and the corporates to both entities have fallen on deaf ears so far.
Congress has no authority over the FASB, which is a private sector group, and has been loath to stick its nose in for fear of being charged with political interference.
