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New accounting rules promised for battered banks

A requirement that assets be valued at current prices, leading to steep write-downs, will be changed, a House panel is told.

March 13, 2009|Associated Press

WASHINGTON — A House panel wrung a pledge Thursday from the head of an accounting board to try to issue guidelines in three weeks that will ease rules that force banks to value assets at current prices.

The commitment by the chairman of the independent Financial Accounting Standards Board came amid a muscular display of congressional power at a hearing on the so-called mark-to-market accounting rules.

The head of the House panel, Rep. Paul Kanjorski (D-Pa.), had held out the threat of legislation to pressure the standard-setting board and the Securities and Exchange Commission to take steps that would give relief to battered banks.

The board had planned to release the new guidelines in the second quarter of 2009. The current rule has forced banks to take steep write-downs on some financial assets -- especially securities linked to mortgages -- even as they have suffered from the housing slump.

As the financial crisis grinds on and banks large and small founder and fail, the banking industry has pushed for the accounting relief.

Board Chairman Robert Herz told members of the House Financial Services subcommittee on capital markets that the board "could have the guidance in three weeks."

Members of the panel pleaded for emergency accounting relief they said would help small banks, taxpayers, bank depositors and homeowners suffering in the economic crisis. As banks have teetered and the government has injected hundreds of billions of dollars in public money into them, taxpayers too have been hurt by an inflexible accounting rule, they argued.

"We may help save the jobs of several million Americans and help keep the country out of a worse economic situation" than the current one, Kanjorski said.

Banks have been forced to write down their mortgage-backed securities, gutting their balance sheets even though the assets could eventually recover their value before the banks sell them.

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