I am sure that many of you have heard the phrase “mark-to-market” floated around recently. Mark-to-market is an accounting practice, instituted by the Federal Accounting Standards Board (FASB), that requires financial institutions to price an asset according to current market price, also known as fair value. The procedure was set up to create market-based information for investors regarding the current price of assets and implemented Financial Accounting Standard No. 157 in 2006 at the onset of the turmoil in our financial markets.
While I am certain that FASB believed this rule would create sounder accounting practices, mark-to-market has actually worsened the financial crisis by forcing holders to value assets at an artificially depressed value. The use of such accounting practices to value assets in the current economic conditions has only intensified the economic downturn and threatened the health of many of our country’s financial institutions.
For that reason, earlier this month, I joined my colleague Congressman Ed Perlmutter (CO-07) to introduce H.R. 1349, the Federal Accounting Oversight Board (FAOB) Act of 2009. This bipartisan legislation would create an oversight board, comprised of the heads of the Federal Reserve, the SEC, the FDIC, the Treasury Department, and the Public Company Accounting Oversight Board, to approve and oversee accounting standards and principles. The FAOB would allow for a broader economic perspective of accounting practices and would encourage FASB to move more quickly and aggressively to respond to the current economic situation.
We need to have flexibility within our federal accounting standards. Currently, only the SEC, which regulates the securities industry, has oversight of FASB’s actions, which affects all financial institutions. While the SEC has made some attempts to encourage FASB to act, their efforts have, thus far, produced no results. Until we stabilize the way we value assets, we are not going to be able to turn the current financial crisis around. I cannot permit FASB to continue to allow the financial system to crumble down around them. H.R. 1349 will be the first step of many to correct the current problems and will establish a safeguard to ensure our financial industry does not suffer from another crisis like this again.