Amendment could neuter FASB

November 7, 2009

Sarbox isn’t the only regulatory regime under threat. As Ryan Grim writes over at HuffPo, an amendment has been introduced that would put FASB under the thumb of the new systemic risk oversight council, and give the council the power to literally do away with inconvenient accounting rules that pose a problem for banks.

Astonishingly, at a time when the public is crying out for greater regulation to limit excessive risk-taking by financial institutions, the banks are trying to get Congress to agree that the next time there’s a big downturn, they should have the ability to alter their accounting standards — essentially, fudge the numbers — so that the public and investors won’t be able to tell how insolvent they really are. By ignoring their declining asset values, they can avoid the standard requirement of raising more capital.

The mechanism is contained in an amendment set to be introduced in mid-November by Rep. Ed Perlmutter (D-Colo.) that would move final authority over the Financial Accounting Standards Board (FASB) from the Securities and Exchange Commission to a new body, a so-called “oversight” board, that would include the officials charged with managing systemic risks to the financial markets.

Accountants are apoplectic. Even the Chamber of Commerce is fighting this, on behalf of their non-bank membership, co-signing a letter with the Center for Audit Quality and the Council of Institutional Investors:

By placing the FASB under the jurisdiction of a structure charged with managing systemic risks to the financial markets, accounting rules will be viewed though the narrow lens of a few large companies from specific industries, rather than considerate of the applicability of financial reporting policies to over 15,000 public companies. Such a narrow focus can skew standards such that it makes understanding of transactions that businesses engage in on a daily basis more difficult and undermine the confidence of investors. We believe that the SEC has been and continues to be best suited to provide the oversight of the FASB for such a broad and diverse economy.

As such, we strongly support an independent standards-setting process, subject to public scrutiny and free of undue pressures.

Another helpful bit of the article explains how it isn’t Wall Street driving this, it’s smaller community banks.

It bothers me how small banks have been able to set themselves up as David to the Wall St. Goliath. No, they don’t benefit from TBTF guarantees so, yes, they are at a disadvantage relative to Wall St.

But that’s not a reason to bend the rules in their favor. No they didn’t get involved in more exotic products that blew up Wall St., but many got caught in the CRE mania. If they are insolvent, they need to be shut down. Otherwise they’ll continue to absorb capital that should go to solvent banks and borrowers.

But congressmen tend to like little guy storis (also they like campaign contributions from community banks) so many are happy to sponsor this race to the bottom.

(By the way….it’s interesting that Kanjorski is against this. Recall that it was his subcommittee that browbeat FASB into overriding fair value rules earlier this year.)

4 comments

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Our culture has a sick attachment to money. So much so that we are willing sow the seeds of more suffering in the hopes of being able to extract just a little more profit.

Banking as a business is obsolete. They have ceased to be of value they way they currently operate. There was a time when banks were the avenue by which business was allowed to grow. But now the banks are so concerned with their own profits that they create “products” designed strip profit from legitimate transactions and divert them to the banking sector. There the money just sits and waits to line the pockets of those that stole it.

It is illogical and unreasonable given the operating history of our banking sector, to allow them to continue to operate for profit. They should be under government control and lend money at zero interest.

The only reason the giant banks even still exist is because they got the money that was supposed to have gone to the citizenry. They should be working for us now.

It’s time for banking to stop being a business and become a service for securing the interests of the citizen. I might get told in less than polite terms to STFU. But a look around easily demonstrates that the banking sector is poisonous in it’s current configuration.

I know that I’m not alone in my opinion that when there are citizens going homeless, hungry, sick, and uneducated, the banking sector’s problems are the last thing to consider. They need to be in service to us. Their ability to profit should be removed.

We are not animals and we should not be content to live as such.

That’s one of the worst ideas I’ve heard recently.

Also, many things may happen at a bank, but one thing you’ll never see is money just sitting around.

Gov’t operated banks are more of a drain and danger than for profit banks.

Plenty of smart people work for companies that aren’t banks. If the banking sector was so obsolete and worthless, why do large well funded well staffed companies voluntarily use the sector’s services year after year after year.

I’m not agaist reforms and changes. It’s clear there is a size of bank that is too big, and I’m not against bringing back glass-steagal. To suggest that the modern banking system hasn’t played a vital role in enabling the western world to reach the standard of living that it has today it just wishcasting.

Posted by Andrew | Report as abusive

There is an argument for FASB being part of the system of oversight along with the other financial regulators. Let’s face it, some key FASB decisions (exempting SPEs used for derivatives from consolidation) and caving in at various times on M2M were pivotal factors in the crisis. FASB hasn’t proven itself any more or less susceptible to industry lobbying and political interference than any other regulator. It should at least have a seat at the table when systemic risk is discussed. Whether that translates to being subject to the decisions of the system risk regulator is a broader issue that applies to all the proposed members.

Posted by Linda | Report as abusive

These acronyms only mean anything to New Yorkers, but this is a microcosm in the Global context. Andrew and Benny, transactional, systems driven banking should be run by Feds and Treasuries, all the ‘retrenchees’ can apply for Government jobs. Consolidation of smaller and community banks under one brand, let’s say per State, e.g. the Community Bank of Alaska, would lead to trust competition for other services, which will drive down fees.

Posted by Casper | Report as abusive

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