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House bill would create panel to OK accounting rules

March 6, 2009 |  2:19 pm

Get ready for another push to suspend "mark-to-market" accounting rules.

A bill introduced late Thursday by Rep. Ed Perlmutter (D-Colo.) and Rep. Frank Lucas (R-Okla.) would create a federal board to review the "application" of accounting principles -- including controversial mark-to-market rules.

The new board would oversee decisions of the Financial Accounting Standards Board, the independent body that dictates accounting standards.

The new federal board's members would be the heads of the Securities and Exchange Commission, the Federal Reserve, the Treasury Department, the Federal Deposit Insurance Corp. and the Public Company Accounting Oversight Board.

Perlmutter_2The panel, taking authority the SEC now has, would "give discretion to the regulators to consider the overall condition of the financial market," Leslie Oliver, a spokeswoman for Perlmutter, told Bloomberg News.

The FASB, which now sets accounting rules under SEC supervision, takes a "narrower approach," she said.

The banking industry has asserted that mark-to-market, or fair-value, accounting has worsened the financial crisis. The FASB's rules require financial institutions to value securities on their books at current market prices, even if the securities don't mature for many years.

Bankers say that has unfairly ravaged their balance sheets because, they say, market values of mortgage-related securities have been unrealistically depressed, reflecting the massive uncertainty over the housing market.

"As we work to stabilize financial markets and rebuild the economy, we must look closely at the regulatory structure to see what is helping and what is making things worse,” Perlmutter said in a statement.

The banking industry didn’t hide its enthusiasm for the new oversight regime that Perlmutter and Lucas propose.

The bill "represents much-needed reform that will help address systemic risks that accounting standards can have on the economy," Edward L. Yingling, president of the American Bankers Assn., said in a statement.

"Mark-to-market rules have clearly exacerbated the financial crisis as institutions have been forced to report market losses rather than economic losses, resulting in a continuous downward spiral of market prices and further losses," Yingling said. "The current framework for accounting oversight, though well intentioned, has proved inadequate and must be fundamentally revised in order to provide transparent information for the benefit of investors, customers, and the public."

-- Tom Petruno

Photo: Rep. Ed Perlmutter