The Security and Exchange Commission and the Financial Accounting Standards Board will work on changes in the mark-to-market practice by early April. That’s what they promised members of the House Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises late last week. Federal Reserve chairman Ben Bernanke, SEC chairman Mary Shapiro, and the American Bankers Association got their wish. Maybe.
After all, working on changes is no guarantee of making changes. And in his testimony before the committee James L. Kroeker, acting chief accountant at the SEC, was quite deferential to the FASB, citing “the importance of the FASB’s independence” and reviewing the three public roundtables held last year that yielded the finding that “fair value accounting provides useful information to users of financial reporting,” though improvements “particularly in inactive or illiquid markets” would be nice.
FASB chairman Robert H. Herz was adamant in his support of the board’s treatment of mark-to-market rules, noting that “FAS 157 was issued to establish a consistent definition of fair value. It also provides a coherent framework for determining fair value across varying types of assets and liabilities and differing market conditions and requires significantly expanded and enhanced disclosures relating to the use of fair value in financial statements and its impact on reported earnings and financial condition.” Improvements have always and will continue to be made. The end.
Testifying on behalf of the Pennsylvania Association of Community Bankers and the Independent Bankers of America, Thomas Bailey, president and CEO of Brentwood Bank, expressed concern about mark-to-market and other than temporary impairment practices. “The application of mark-to-market in frozen markets is at the heart of the problem,” Bailey said. “If FASB does not take action quickly, the situation will get worse.” Mark-to-market accounting rules “hinder transparency and distort the true financial condition of financial institutions hold mortgage-backed securities,” he told the committee.
Congress is now threatening to write accounting rules, so perhaps the FASB and the SEC will come up with something fresh next month.