The board that sets U.S. accounting standards bowed to congressional pressure on Thursday and allowed banks more flexibility to value toxic assets that have forced billions of dollars in write-downs. The independent Financial Accounting Standards Board (FASB) voted to adopt guidelines under the “mark-to-market” accounting rules, which require companies to value assets at prices reflecting current market conditions. The changes could reduce the losses banks have been forced to report, as the values of their mortgage-backed securities have plunged. The decision will allow the assets to be valued at what they would be worth in an “orderly” sale, as opposed to a forced or distressed sale. The mark-to-market rules have forced banks to take huge write-downs on some assets, particularly securities tied to high-risk subprime mortgages. Some lawmakers, banks, and other supporters of the changes argued that pricing assets to distressed prices during a time of inactive markets has worsened the financial crisis through the write-downs, big declines in profits, damage to capital ratios, and a reduced ability to lend. However, investors say that more flexibility with the rules would allow big banks to hide the real value of their toxic assets. The changes to mark-to-market accounting would take effect in the second quarter that began this month. The accounting board met in Norwalk, Connecticut to consider the rule changes. FASB Chairman Robert Herz said the accounting group “did extensive outreach to investors, particularly major investors in financial institutions.” But some FASB members expressed reservations about the proposed changes. “I don't have a lot of confidence in how people value fair value,” said FASB board member Thomas Linsmeier. A congressional committee last month told Herz to move quickly to ease the mark-to-market rules or lawmakers would take action.
