Monday, September 29, 2008

EESA To Be Voted On Today Would Require SEC Study Mark-to-Market (MTM) (Fair Value) Accounting; Reiterates SEC Can Suspend MTM

The Emergency Economic Stability Act of 2008 (EESA) (see Discussion Draft of the bill) to be voted on by the House this morning, with the Senate reportedly to vote later this week, includes two provisions related to mark-to-market (MTM) accounting, also called fair value (FV) accounting, particularly as set forth in FASB Statement No. 157, Fair Value Measurement (FAS 157).

Section 132 of the Act reiterates the SEC’s authority to suspend FAS 157 for any issuer, or with respect to any class or category of transaction, if the SEC determines that it is in the public interest and consistent with investor protection to do so.

Section 133 of the Act requires the SEC, in consultation with the Federal Reserve and Treasury, to conduct a study and report to Congress within 90 days on the impact of MTM accounting on financial institutions, including the effect of MTM on financial institutions’ balance sheets, the impact on bank failures in 2008 and the impact on the quality of information to investors. Additionally, the study must address FASB’s standard-setting process, the advisability and feasibility of modifications to such standards [presumably, the fair value standards and related standards]; and alternative accounting standards to those provided in FAS 157.

For further details, see FEI’s summary of Sections 132, 133 of EESA based on discussion draft of bill posted by House Financial Services Committee Sept. 28.)

A discussion of the mark-to-market accounting provision in the bill can be found at the end of the article, “Broad Authority, Lots of Money and Uncertainty,” by Binyamin Appelbaum, David Cho and Neil Irwin in today’s Washington Post. Separately, Floyd Norris posits that the crisis leading to the bailout was caused not so much by overregulation or deregulation as ‘unregulation,’ and comments on EESA’s accounting provision, in his article in today’s New York Times, “After The Deal, The Focus Will Shift to Regulation.”

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