Sen. Lauch Faircloth introduced a bill last week that could exempt banks from a controversial accounting rule for derivatives.
Under the legislation, bank regulators could block the Financial Accounting Standards Board rule if they determine it would distort earnings or impede risk-management efforts.
"The depth of opposition by banks and other companies cuts across size and should cause anyone to sit up and take notice," the North Carolina Republican said. "I would hope that this situation could be worked out without congressional legislation, but if it cannot, my bill will provide the bank regulators with a backstop on the new standards."
Sen. Faircloth also complained that FASB has worked too closely with the Securities and Exchange Commission on the accounting rule, which is opposed by the Federal Reserve Board and the Office of the Comptroller of the Currency.
"This appears to be a regulatory dispute and not an accounting dispute," said Sen. Faircloth, who is chairman of the Senate Banking Committee's financial institutions subcommittee.
Under the accounting board plan, companies would be required to report derivatives at fair market value on quarterly income statements. Critics claim the plan would create a false picture of a company's performance because most derivatives are held until maturity as a hedge against fluctuations in interest rates and securities prices.
Industry officials praised Sen. Faircloth's bill. "FASB is trying to force-feed (the rule) to the banking industry," said Donna Fisher, director of tax and accounting for the American Bankers Association. "Faircloth's approach to dealing with this problem is very insightful."
But others said Sen. Faircloth was politicizing the setting of accounting rules. "My fear is that this will set a dangerous precedent for accounting standards," said Marti Sworobuk, president of Financial Standards Inc. "Banks don't like financial reporting to be associated with the legislative process."
A spokeswoman for the accounting board on Friday declined to comment, but FASB Chairman Edmund L. Jenkins has repeatedly said the rule would help investors by giving them a clearer picture of a company's financial health. The rule is scheduled to take effect on Jan. 1, 1999.