Bill Would Give Banks Flexibility

Mar 10, 2009
In The News

A committee of the nation’s top financial regulators could adjust accounting rules as economic conditions warrant under a bill from Rep. Ed Perlmutter, D-Colo., and Rep. Frank Lucas, R-Okla.

The proposed legislation tries to tackle one of the thorniest debates in the credit crisis: Are existing accounting rules making the recession worse than it would otherwise be?

Fair-value accounting requires that companies value the securities and other marketable assets they hold at market prices.

But, critics argue, when buyers disappear, as they have done with many types of debt instruments, market prices get distorted.

That causes banks to write down the value of their holdings, reducing the amount of capital they have available to make loans, accelerating the downturn.

"We shouldn’t have to mark down assets that we have no intention of selling," said Bob Davis, market president of First Community Bank of Lafayette, who along with other bankers strongly supports the bill.

Perlmutter said the goal of the legislation is to give regulators more flexibility in dealing with accounting standards in different economic cycles.

The bill would create a Federal Accounting Oversight Board made up of the chief executives of the Federal Reserve, Treasury, FDIC, Securities and Exchange Commission and Public Company Accounting Oversight Board.

"It gives regulators their best discretion as to how these accounting standards work on the ground, to make sure they don’t create unintended consequences," Perl mutter said.

And as the bill is now written, companies would still have to disclose what their assets are worth under fair-value rules, he said.

Supporters of the existing system argue that tampering with the accounting rules just because times are difficult erodes rather than builds investor confidence.

University of Denver accounting and law professor Kevin O’Brien said he worries that the committee could politicize how accounting rules are applied and complicate efforts to bring U.S. accounting standards in line with international ones by 2014.

The U.S. House Financial Services Committee holds a hearing on so-called "mark- to-market" accounting Thursday.

# # #

Recent Posts


Jun 3, 2024
Agriculture

Lucas Statement on Farm Bill

Washington, D.C. – Congressman Frank Lucas (OK-03) released the following statement after the House Committee on Agriculture completed its markup of the next Farm Bill: “I applaud Chairman Thompson for completing the gargantuan task of passing this Farm Bill out of Committee. As a former Chairman of the House Ag Committee, I know firsthand just how […]



May 16, 2024
Economy

Lucas: Basel Endgame Will Penalize Central Clearing

Washington, D.C. –  At today’s House Financial Services Committee hearing, Congressman Frank Lucas (OK-03) questioned FDIC Chair Gruenberg and Federal Reserve Vice-Chair Barr on the consequences of the Basel Endgame proposal. Specifically, Congressman Lucas brought to attention his concern that the Basel requirements will constrain the capacity of banks to offer central clearing. He has previously pressed this […]



May 14, 2024
Press

Lucas Advocates for FAA Reauthorization

Washington, D.C. – Today, Congressman Frank Lucas (OK-03) spoke on the Floor in support of the Senate’s amendment to the Federal Aviation Administration (FAA) reauthorization bill, which the House will be voting on tomorrow. The bill includes Rep. Lucas’s language for the FAA to submit a plan to Congress to improve air traffic controller training and set the air traffic […]