An independent board that sets U.S. accounting standards bowed to congressional pressure on Thursday and discussed ways to give banks more flexibility to determine the value of toxic assets that have forced billions of dollars in writedowns.
The Financial Accounting Standards Board said its proposed changes to mark-to-market accounting would take effect in the second quarter for most U.S. companies, but early adoption would be allowed for most companies' first quarter.
Supporters of the changes argue that forcing banks to mark assets to fire-sale prices during a time of inactive markets has exacerbated the financial crisis through writedowns, earnings hits, damage to capital ratios and a reduced ability to lend.
Investors take a different view, saying that more flexibility with the rules would let big banks hide the real value of their toxic assets.
The five-member board met in Norwalk, Connecticut, to discuss more than 300 letters and e-mails sent by banks, investors and others commenting on the FASB proposals.
FASB Chairman Robert Herz said the accounting group did extensive outreach to investors, particularly major investors in financial institutions, ahead of the Thursday meeting.
Some members of FASB expressed reservations about the changes proposed. I don't have a lot of confidence in how people value fair value, said board member Thomas Linsmeier.
A congressional panel last month told Herz to move quickly to ease the mark-to-market guidance or lawmakers would take action. Four days later FASB issued two proposals: one to give banks more flexibility in applying mark-to-market accounting, and another addressing when banks must take writedowns on impaired assets.
In considering the proposals on Thursday, the FASB board said the objective of mark-to-market, or fair value accounting, in inactive markets should be to determine what an asset could fetch in an orderly transaction between market participants. Such an orderly transaction would not include distressed transactions or fire-sales, it said.
The board also agreed to drop a presumption in its original proposal that would have allowed all asset transactions in an inactive market to be considered distressed unless proven otherwise. It said that particular language could have had unintended consequences.
FASB's meeting was expected to wrap up by midday with votes to finalize both proposals.
(Reporting by Emily Chasan and Rachelle Younglai; editing by John Wallace)