ABA calls for action on mark-to-market accounting

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WASHINGTON, DC - The American Bankers Association (ABA) has called on US regulators for immediate action to counter the pro-cylical effects of mark-to-market accounting before financial institutions file their year-end results.

The letter, sent simultaneously to the Securities and Exchange Commission, the Federal Reserve, current Treasury secretary Henry Paulson and incoming Treasury secretary Timothy Geithner, and Democrat and Republican leaders of the House Financial Services Committee and the Senate Banking Committee, was in response to comments made by Paulson during a speech he delivered on November 20. Speaking at the Reagan Library in California, Paulson said it was important to address the aspects of the US financial system that reinforce rather than counterbalance cycles. He also stated "mark-to-market accounting is clearly pro-cyclical".

In the letter, ABA president and chief executive Edward Yingling strongly agreed with Paulson's assessment of mark-to-market accounting, stating the past year "has demonstrated that the consequences of these pro-cyclical accounting standards are grave".

Yingling further noted that, because banks will be required to file their year-end financial statements in a few weeks, the time to address the failures of accounting policy is now, as delay threatens to undo much of the work of Treasury's Capital Purchase Programme.

"While the government makes millions of dollars available to increase capital, other policies simultaneously are needlessly, and wrongly, erasing billions of dollars of banks' capital," said Yingling."

The ABA also suggested three things the SEC could do in the near term to help alleviate concerns. These are: to clarify that the accounting rules for other than temporary impairment are based on credit impairment; clarify that the definition of fair value is based on willing buyer/willing seller rather than exit price; and delay the implementation date for the new business combinations rules, which affect mergers and acquisitions.

Click here to view a copy of the full letter.