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ICBA Urges Changes to Accounting Standards

Existing standards contributing to current economic downturn

Washington, D.C. (March 12, 2009)—The Independent Community Bankers of America (ICBA) today urged policymakers to reform accounting standards that are exacerbating the current financial crisis. Testifying before the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, ICBA recommended several changes to existing standards, which cause valuations to be derived from a dysfunctional market.

“With all the economic crises facing this country right now, the application of these rigid accounting rules, in these times, is much like throwing gasoline on a raging inferno,” said Thomas Bailey, president and CEO of Brentwood Bank in Bethel Park, Pa., and chairman of the Pennsylvania Association of Community Bankers. “The application of mark-to-market in frozen markets is the heart of the problem. When these rules were developed, this unprecedented situation could not have been imagined.”

Bailey said current mark-to-market accounting rules, which value assets based on current market prices, hinder transparency and distort the true condition of financial institutions holding debt securities, which negatively affects credit. Because financial institutions are not willing to risk purchasing assets that could result in future write-downs, buyers are scarce, the number of transactions continues to decline, the already weak market further deteriorates and market prices do not reflect the true value of the assets.

Although the suspension of mark-to-market accounting is appealing, ICBA recognized concerns with that approach and instead offered alternatives and urged additional guidance on other-than-temporary impairments of debt securities to improve financial reporting in these unique market circumstances. In that regard, Bailey urged Congress to encourage the Securities and Exchange Commission and Financial Accounting Standards Board to apply existing accounting rules for loans held in portfolio to debt securities financial institutions are able to hold.

Read the full testimony at www.icba.org.