WASHINGTON — Securities and Exchange Commission Chairman Christopher Cox, in rejecting a reversal of mark-to-market accounting rules, left the door open to refining the rules' application.

Among the possible changes are requiring smaller writedowns on distressed assets, allowing more flexibility in valuing assets that have no buyers, and easing the impact of fair-value accounting on regulatory capital.

While many bankers want mark-to-market accounting scrapped — blaming it for excessive writedowns and ultimately causing some institutions to fail — some say such refinements would still be an improvement.

"Additional guidance is necessary, because the current circumstances leave room for lots of disagreement among very well-intentioned and well-educated people," said Donald van Deventer, the chief executive of Kamakura & Co., a consulting firm in Honolulu.

Mr. Cox said in a speech last week that fair-value accounting was "a meaningful and transparent measure of an investment," an apparent sign the agency would recommend retaining mark-to-market accounting when it issues a report on the standard Jan. 2. But Mr. Cox also said more clarity was needed in the standard's application "in inactive or illiquid markets," which gave critics hope that changes are coming.

A clear change coveted by the industry is flexibility in what factors accountants use to write an asset down to fair value, known as an "other than temporary impairment" charge.

Under current standards set by the Financial Accounting Standards Board, an asset's value can decline even further than its underlying performance.

For example, a mortgage-related security bought initially at $100 could lose $20 in value because of payment defaults from borrowers in the mortgage pools that back the asset. Under fair-value accounting, the value could fall down much further, to something like $40, due to other broad factors in the market, such as the lack of investors buying up similar securities.

Such a scenario has played out frequently during the financial crisis, but observers argue mark-to-market rules could be changed to limit declines solely to credit factors — and not take into account broader market factors that fluctuate rapidly. If regulators allowed that, the $100 security would still be worth $80, a much less significant hit to financial institutions that own it.

"Once you write that asset down to $40, you can't write it back up. The only way is to sell it," said Sydney Garmong, a Washington-based executive for Crowe Horwath, an accounting and consulting firm. "Some have said if the impairment could only be for the credit component, then that may be a better model. If you have to take an impairment charge, the charge wouldn't have to represent the entire decline in fair value.

"That's the one" change "that would probably relieve an awful lot of pressure at this point."

The SEC has already taken a step toward making that change. In mid-October the agency called on FASB to relax the requirements for what defines an "other than temporary impairment" in certain securities. But the board has yet to respond, worrying industry representatives who want the changes in place before banks report yearend earnings.

"What's really needed is speed," said Donna Fisher, a senior vice president of tax and accounting at the American Bankers Association.

Last week, Mr. Cox echoed those concerns.

"I believe it is critical that FASB complete its analysis of the SEC's request for expeditious improvement in the impairment model," he said in his speech.

Industry representatives have also been pushing to allow more flexibility in how banks value securities when there is no market for them. Institutions would prefer using internal models of what a security's resale value is, rather than simply using the price of other similar assets.

"What the industry is looking for, if it can't totally eliminate mark-to-market accounting, is clarity when there's no market," said Kip Weissman, a partner at Luse Gorman Pomerenk & Schick PC and a former attorney at the SEC. "You have these securities that obviously had value, but if there is no market for them, under the rules do you have to absolutely mark them to zero?"

The SEC recommended in September that companies be allowed to use their own models more. But observers said that FASB, in carrying out the recommendation, did not deliver the message clearly enough, leading to ambiguity.

It is still "up to the bank and its audit firm to have a discussion about whether" a valuation "is reasonable or it is not," said Ms. Fisher. If banks must continue to mark securities "down to that lowest possible value, it is terribly going to overstate losses," she said.

"The market is so dysfunctional right now, and there is so much uncertainty, that the people who normally buy have exited the market," Ms. Fisher said.

The Shadow Financial Regulatory Committee agreed, saying last week that FASB should require banks to provide more information about their models. That could ease concern many auditors have about being sued if they depart from strict mark-to-market accounting.

"This litigation exposure can be reduced by more detailed disclosures about the valuations models," the group of academics and economists said.

Mr. Van Deventer said FASB could make the process clearer by laying out a hierarchy of factors auditors can use if dependable market prices are missing.

Officials "need to … say: Here is the order of various ways of doing the calculations that you should follow as the amount of information available to you shrinks," he said. "In the current circumstance, for many people, there are literally no observable prices."

Observers said another way to lessen the burden of fair-value accounting is for the banking regulators to be more flexible in assessing an institution's capital ratios.

"Many opponents of fair-value accounting assert a downward spiral effect, in which the sale of assets at distressed prices leads to further asset devaluations, which in turn produces more distress sales and still lower prices, as writedowns reduce regulatory capital," the Shadow committee said.

"These arguments may well have merit, but in our view they point to the possible need for adjustments in regulatory requirements or contractual provisions — not to alterations in the accounting rules to create higher nominal capital."

Mr. Weissman agreed, saying bank regulators could still "make sure investors are aware" of the fair value of a security they are buying. "A separate issue is whether they should say, 'For capital purposes we're not going to totally punish you just because some investments went bad in one year,' " he said.

Yet the strongest proponents of mark-to-market accounting caution that significant revisions could weaken fair value.

"I worry about that," said Darrell Duffie, a finance professor at Stanford University's Graduate School of Business.

Prof. Duffie said investors need unfiltered information about volatility in the market to make their own informed decisions.

"Advocates for moving away from mark-to-market accounting suggest that it would be difficult for investors to deal with that information," he said. "Investors would be much better off knowing from what benchmark they need to adjust."

On the other side of the coin, the harshest critics of the accounting rules, who allege that the standards have played a central role in the market turmoil, warn against the SEC's advocating for revisions that are too weak.

"If what they have in mind is just to tinker around the edges, and not pull back from this in a significant way, then that to me would be the height of irresponsibility," said William Isaac, a former chairman of the Federal Deposit Insurance Corp. and now the chairman of Secura Group.

Mr. Weissman said there is a middle ground.

"We're in a climate of fear, so there needs to be leadership and clearer principles. Otherwise, in a climate of fear, everyone is just going to take the most conservative position, and that's hurt the industry in the last few months," he said.

"There are gray areas between absolute mark-to-market accounting, which no one is in favor of, and absolute historical accounting with no mark-to-market disclosures. There are many compromises."

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