Congressman Al Green and Congressman Ed Perlmutter Urge SEC to Modify Accounting Standards
(Washington, DC)--Today, Congressman Al Green and Congressman Ed Perlmutter sent a letter to Securities and Exchange Commission (SEC) Chairman Mary Schapiro proposing possible modifications to the “mark-to-market” accounting standards currently in place. The mark-to-market standards have been criticized for exacerbating the ongoing financial crisis by causing extensive write-downs of assets and the loss of significant bank capital.
Mark-to-market accounting rules require that companies value their assets based on the current market price for those assets or similar assets. The application of mark-to-market in the form of the Financial Accounting Standards Board’s FAS 157 has been problematic for many lending institutions during this financial crisis because the rules cause the lenders to lose substantial capital on their balance sheets, even for futures contracts and the like, which will not actually be acted upon until they mature.
Congressman Al Green's letter urges Chairman Schapiro to consider and respond to the possibility of directing the Financial Accounting Standards Board to issue new accounting standards that would value securities for which a market is, in practice, nonexistent, by taking into consideration cash flow and collateral values. The letter also urges Chairman Schapiro to consider whether companies’ financial statements should be supplemented with an addendum describing how the reported values result from the implementation of this methodology. Finally, the letter emphasizes the need to develop clear, consistent and transparent standards that derive from a process that takes into consideration the views of regulators, consumers and industry officials.
Congressman Al Green is seeking solutions that will help resolve the ongoing crisis by helping lenders stabilize their balance sheets—without the use of government money—by enhancing transparency to provide investors with confidence in the stability of the lending institutions from whom they borrow.
According to Congressman Al Green, “Mark-to-market is a rule that we should not end, but must amend. The adverse impact under current market circumstances exceeds the rule’s positive effects, particularly since some products are going to be held until maturity. For these instruments, the most important time to assess their value will be at maturity as opposed to at random moments in time.”
Congressman Perlmutter said, “As we work to stabilize financial markets and rebuild the economy, we must look closely at the regulatory structure to see what is helping and what is making things worse. Any changes must provide the accountability and transparency necessary for investors to assess their investments in financial institutions, but we should strive to provide regulators with the flexibility they need to work with financial institutions to keep credit flowing to Main Street.”
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