SEC Study Defends Fair-Value Accounting Rule

By Ian Katz
Bloomberg News
Wednesday, December 31, 2008

The Securities and Exchange Commission yesterday rejected calls by banks to suspend an accounting rule blamed for exacerbating the financial crisis, saying the "fair- value" standard should instead be improved.

"Fair-value accounting did not appear to play a meaningful role in the bank failures that occurred in 2008," the regulator said in a statement. The SEC study, ordered by Congress, recommends changing accounting for so-called impaired securities and giving companies more guidance on determining the value of investments in inactive markets.

Banks including Citigroup say the rule, which requires companies to record assets every quarter to reflect market value, fails when buyers shun assets such as subprime mortgages. Proponents, including the Financial Accounting Standards Board, say it adds to transparency and gives investors information about companies.

The study "will be a useful source of information and guidance not only to policymakers in Congress but also to independent standard-setters," SEC Chairman Christopher Cox said in the statement.

Congress gave the SEC 90 days to study fair-value rules when lawmakers passed the $700 billion federal financial rescue package in October.

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