NEW YORK – A blue ribbon panel of financial and accounting experts criticized U.S. lawmakers yesterday for their role in forcing accounting rules changed this spring in order to ease the stress on banks and credit unions.
The Financial Crisis Advisory Group, appointed by U.S. and international accounting rules-setters, identified two instances, including April hearings into mark-to-market accounting where lawmakers pressured the rules-setters to change the rules to aid financial institutions. "In April 2009, under pressure that the U.S. Congress would change accounting standards by legislation, the FASB accelerated its normal due process before issuing guidance in several fair value areas," said the group, which was appointed by the Financial Accounting Standards Board and the International Accounting Standards Board to review the causes of the financial crisis.
"The FASB’s actions also emboldened opponents of fair value of fair value accounting to press for further concessions such as ignoring market value entirely in determining fair value in inactive markets," noted the report.
The panel urged that Congress and other policymakers stay out of the accounting rule-making process. "Such restraint is important in maintaining public confidence in the independence of the standard setting process, and, thus, in financial reporting and the financial system as a whole," wrote the group.
The accounting experts were referring to a hearing held March 12 when members of the House Financial Services Committee insisted to FASB Chairman Robert Herz that the FASB act quickly to change mark-to-market rules in order to ease the pressure on financial institutions, after a withering lobby by banks and credit unions, especially corporate credit unions. Herz reluctantly agreed and the FASB voted to change the rules in less than six weeks-what is considered lightening-fast for the notoriously slow-paced rule-making body.
The hearing was preceded by an intense lobbying effort by the banks and corporate credit unions to convince the FASB to bend the rules or change them. For months representatives from U.S. Central FCU, WesCorp FCU, and several other corporates lobbied both the FASB and Congress with letter-writing campaigns, phone calls and outside lobbyists.
At the hearing lawmakers threatened to rein in the FASB’s independence if it did not change the rules quickly. "Just get it done. Stop dithering. Don’t make us tell you what to do," said Rep. Michael Capuano, a Massachusetts Democrat.
"This is the FASB, not the slowsby–and we are going to have to have some movement," said Rep.
"One way or another, we’re going to find a way to get some relief of the assessment of these assets," said Rep.
"It’s a storm," said Rep.
After the browbeating, Herz returned to the FASB’s Stratford, Conn., office where he and the rest of the five-member board fashioned changes to mark-to-market which, among other things, allowed entities to separate actual expected losses, from the mere diminishment of market value in unrealized losses. It also gave additional guidance on valuing assets in distressed or inactive market. Both changes will help corporate credit unions continue to hold distressed mortgage-backed securities on their books until maturity, preventing them from having to realize billions of dollars in losses.
"We fully understand that policymakers are under tremendous pressure to resolve the financial crisis and institute reforms, and that improvements in financial reporting are an important part of the reform agenda," said the crisis group. "However, during the last several months, we have become increasingly concerned about the excessive pressure placed on the two Boards to make rapid, piecemeal, uncoordinated and prescribed changes to standards, outside of their normal due process procedures. While it is appropriate for public authorities to voice their concerns and give input to standard setters, in doing so they should not seek to prescribe specific standard-setting outcomes."
"We believe it is important to recognize that the truncating of due process, whether in fact or appearance, undermines public confidence in the integrity of the standard-setting process and therefore hinders broad acceptance of the standards themselves," said the group.
The group included: Harvey Goldschmid, former commissioner of the Securities and Exchange Commission; John Bogle, founder of the Vanguard group of mutual funds; Jerry Corrigan, former president of the New York Federal Reserve Bank; Gene Ludwig, former Comptroller of the Currency; Don Nicolaisen, former chief accountant at the SEC; and several foreign experts.
