Bernanke defends fair value accounting

Federal Reserve chairman Ben Bernanke has leapt to the defence of fair value
over claims it has exacerbated the credit crunch.

Bernanke said that suspending the controversial valuation method would
further erode investor confidence,

Some banks have been critical of the rules, as the market for many of their
defaulting sub-prime derivatives has dried up. The lack of a market meant it was
impossible to mark their value to the market, and led to huge writedowns. But
alternatives, such as the price when holding such assets to maturity, are also
bad, Bernanke said.

‘[Suspending fair value] would only hurt investor confidence because nobody
knows what the true hold-to-maturity price is,” Bernanke said during a Senate
banking committee hearing.

SEC chairman Christopher Cox told the hearing that regulators planned to
provide ‘timely guidance’ on the rules, but would not comment on whether there
would be a temporary suspension of the rules.

Further Reading:

the Reuters story

Related reading

Fiona Westwood of Smith and Williamson.