Treasury Under Secretary John D. Hawke Jr. is urging the Federal Accounting Standards Board to exempt certain securities from its controversial derivatives proposal.

Under the FASB plan, securities with values that fluctuate relative to inflation would be treated as instruments with derivatives embedded in them. This would require these so-called inflation-indexed securities to be accounted for in an unnecessarily complicated way, Mr. Hawke noted in an Oct. 14 letter to the accounting board.

"We do not believe that this is justified or results in providing useful information to investors," Mr. Hawke said.

The accounting proposal also could harm banks' ability to use derivatives to manage the risks that crop up in deposit liabilities, he said. "We hope that FASB further explores the possible adverse impact on prudent risk-management practices of banks," Mr. Hawke said.

Under the controversial FASB proposal, which is scheduled to take effect Jan. 1, 1999, companies would be required to report derivatives at fair market value on quarterly income statements.

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