FASB Moves Toward Giving Banks More Flexibility on Fair-Value Share | Email | Print | A A A
By Ian Katz
March 16 (Bloomberg) -- The Financial Accounting Standards Board, pressured by lawmakers to change the fair-value rule blamed for worsening the financial crisis, proposed permitting companies to use “significant judgment” in valuing assets.
Companies would be able to apply the revised rule to their first-quarter financial statements, FASB Chairman Robert Herz said today during a meeting at the U.S. accounting rulemaker’s Norwalk, Connecticut, headquarters. The board is set to vote on the proposal April 2, after a 15-day public comment period.
Herz told members of the House Financial Services Committee at a March 12 hearing he would try to have a proposal for revising the rule ready within three weeks. Herz was responding to calls from Committee Chairman Barney Frank and Representative Paul Kanjorski, the Pennsylvania Democrat who leads the panel’s capital markets subcommittee, to move quickly to help banks.
Fair-value, also known as mark-to-market accounting, requires companies to set values on most securities every quarter based on market prices. Wells Fargo & Co. and other companies argue the rule doesn’t make sense when trading has dried up because it forces banks to write down assets to fire- sale prices.
“Mark-to-market is fundamentally not about a quote on a screen,” Wells Fargo Chairman Richard Kovacevich said March 13 in a speech at Stanford University in California. “It should always be about expected cash flows.”
Investor groups and the accounting industry say the rule forces companies to reveal their true financial health to shareholders.
Most financial assets are not valued using fair-value. For example, General Electric Co. told investors this month that 2 percent of the assets of its GE Capital Corp. finance arm are valued based on market prices.
An easing of capital requirements by bank regulators could be part of the solution, Herz said in a March 12 interview. Low asset values can force banks to raise capital to meet federal requirements.
“It’s a question of whether the regulators think that’s the right thing to do or not,” Herz said.