Fair value accounting remains standard

Fair value accounting remains the standard for ISA’s banking industry as the $700bn financial system bail-out legislation passed by Congress signed into law late last week refrains from mandating the Securities and Exchange Commission (SEC) to suspend mark-to-market rules against the wishes of some House conservatives.

Although US Congress went along with the Senate’s language and mark-to-market accounting, giving the SEC the authority to suspend the rules, Los Angeles Times reports the bailout law requires the SEC to conduct a study of mark-to-market accounting, assessing the effects on banks’ finances.

The study must provide answers to Congress’ concerns of the impact of ‘such accounting’ on bank failures in 2008, seeking to discover whether the bookkeeping rules are ‘hastening the demise of banks without good reason?’

Under political pressure, the SEC and the Financial Accounting Standards Board eased the mark-to-market rules on Tuesday, enabling banks to avoid further huge write-downs of mortgage assets. Congress wants the study completed in 90 days.

Further reading:

US Senate passes $700bn bailout Bill

Read the Los Angeles Times story