Banking Groups Seek Suspension of `Fair Value' Rule
By Ian Katz, Bloomberg, September 22, 2008
Bank lobbying groups asked Congress and the U.S. Securities and Exchange Commission to suspend a rule that forces companies to put a price on difficult-to-value assets such as subprime mortgages. The rule ``has been a complete disaster,'' said Edward Yingling, president of the Washington-based American Bankers Association, in an interview today. ``It forced assets to be written down to fire-sale prices, which is well below what they're really worth, in a never-ending downward spiral.'' Yingling said FASB's role as the U.S. accounting rulemaker needs to be “rethought.''
Fair value “is an accounting issue that's too important to be left just to accountants,'' former SEC Chairman Harvey Pitt said in an interview today. Economists, academics and regulators from outside FASB, in addition to accountants, should be involved in considering a new approach to fair value, he said. The rule's backers say it adds to transparency and gives investors more information about publicly traded companies. "This is really just an old conflict between management, which wants to control volatility, and investors, who want transparency,'' said former FASB member Donald Young, who left the FASB in June. Companies are "blaming fair value and using the crisis for cover.'' Investors and companies would have benefited from earlier, not less, adherence to the fair-value rule, said Lynn Turner, a former SEC chief accountant. If Lehman Brothers Holdings Inc. had been quicker to write down mortgage-related assets, "the market would have forced them to quit before they got that deep into the hole,'' he said.