FASB Pledges Mark-to-Market Guidance Soon

By SARAH N. LYNCH

WASHINGTON -- After facing a barrage of criticism Thursday, the chairman of the Financial Accounting Standards Board told a U.S. House panel that he will work to expedite issuing guidance to companies on the application of mark-to-market rules.

Lawmakers from both parties took turns criticizing FASB, as well as the Securities and Exchange Commission and the Office of the Comptroller of the Currency, for not moving fast enough to offer guidance amid the market turmoil. Some of the lawmakers, including the panel's chairman, threatened to intervene with legislation if progress wasn't made soon.

"If the regulators and standard setters do not act now to improve the standards, then the Congress will have no other option than to act itself," said House Financial Services Capital Markets Subcommittee Chairman Paul Kanjorski (D., Pa.).

Mark-to-market rules, which require companies to mark their assets to current value, have forced many of the banks to write down billions of dollars on their books and have made it hard for some of them to meet capital regulatory requirements. While the SEC and FASB have said they don't support suspending the rule, both have agreed guidance on the rules are warranted and FASB is currently in the process of drafting it.

On Thursday, Bank of America Corp. Chief Executive Ken Lewis said that he is optimistic that potential changes to the mark-to-market accounting rule could help companies struggling with massive write-downs.

After a speech in Boston, Mr. Lewis said, "I actually think we will get some relief," referring to the potential for changes.

Initially in his testimony before the House Financial Services, FASB Chairman Robert Herz told Rep. Gary Ackerman (D., N.Y.) that the board hoped to have a proposal out for comment by early April.

Unsatisfied with that response, Reps. Ackerman and Kanjorski said that was far too late, with Mr. Kanjorski noting that at least one of several bills pending on this issue "will become law before early April" if the board doesn't act first.

Mr. Herz then said he would have the final guidance on determining fair value in three weeks, although later in the hearing he backtracked a bit, saying he would have to consult with the other members of his board first.

FASB is an independent board that sets accounting standards for the U.S. Although the SEC has broad authority over financial reporting, the SEC's acting chief accountant, James Kroeker, reiterated Thursday that, as it usually does, the SEC is looking to FASB to offer the guidance in this area. If the SEC chooses to implement some of the recommendations it made in a recent study on mark-to-market accounting, however, Mr. Kroeker said his department stands ready to assist.

Meanwhile, the Office of the Comptroller of the Currency was also under pressure Thursday as lawmakers questioned if the bank regulator is being too harsh in enforcing regulatory capital rules.

"This is important for all regulators," said House Financial Services Chairman Barney Frank (D., Ma.). "We need to give you some discretion in how you react to these things. I am asking everyone -- the Office of the Comptroller of the Currency and others -- if anything in the existing legislation deprives you of discretion in how you react ... I insist that you tell us."

Kevin Bailey, the deputy comptroller for regulatory policy at the OCC, indicated he believes the OCC does have the flexibility it needs.

"Generally what we have tried to do is neutralize temporary fluctuations in value from regulatory capital," Mr. Bailey said. "But I think it is important to reflect permanent changes from a bank's valuation in capital."

As a potential solution to some of the problems stemming from mark-to-market accounting, both the SEC and OCC said one possibility to consider is allowing companies to list separately an asset's losses due to credit risk from losses due to liquidity risk.

Mr. Herz said that FASB and the International Accounting Standards Board are looking at that option as part of a longer-term study on the issue.

Rep. Kanjorski said he intends to hold a follow-up hearing on mark-to-market accounting in April to make sure FASB and the regulators got the message.

"I'm assuming from what we heard today, in three weeks we're not going to have to worry about anything," Rep. Kanjorski said. "We want them to get off their duff and move and get this resolved."

—Jon Kamp and Aparajita Saha-Bubna contributed to this article. Write to Sarah N. Lynch at sarah.lynch@dowjones.com