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Focus turns to 'mark to market'

October 01, 2008|Tom Petruno | Times Staff Writer

An angry debate over accounting rules for banks may be coming to a head.

All year, many bankers have said it was unfair that accounting standards required them to use market value when reporting the value of mortgage securities they own. The frazzled market, they said, was unrealistically pessimistic about the assets' long-term worth.

Markdowns of mortgage assets have devastated the balance sheets of leading banks.

Some in Congress now want to suspend "mark-to-market" accounting altogether and give lenders much more leeway in valuing mortgage securities at levels that, in theory, more realistically reflect what the assets would return over time.

Accounting purists say a rule change would raise the risk that the banks would resort to fantasy accounting -- "mark to make-believe" -- that would overstate the value of their assets to investors.

The $700-billion financial-system bailout bill voted down by the House on Monday had a passage giving the Securities and Exchange Commission authority to suspend mark-to-market accounting if the agency deemed it to be in the public interest and "consistent with the protection of investors."

Some House Republicans, whose votes could be crucial in the next go-round of the bailout bill, are pushing to require the SEC to change the rules.

Opponents of a rule change say it would be folly to give banks more discretion in valuing assets simply because they don't like what the market is telling them.

The Center for Audit Quality, an advocacy group for the accounting industry, issued a statement Tuesday urging Congress to reject any suspension of mark-to-market rules, saying that would undermine investor confidence by allowing companies "to mask the actual value of financial assets at a given point in time."

Under apparent pressure, the Financial Accounting Standards Board, which sets U.S. accounting rules, said Tuesday that it would change the focus of its meeting today to mark-to-market accounting.

Meanwhile, in a possible effort to head off a full suspension of mark-to-market rules, the SEC, which oversees the accounting board, issued "clarifications" Tuesday giving financial firms more latitude in valuing securities when there is no "active market" for them -- which describes many mortgage securities.


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