Multi-industry letter on Mark-to-Market Accounting: Practices and Implications
March 11, 2009
The Honorable Paul Kanjorski
Chairman
Subcommittee on Capital Markets,
Insurance and Government
Sponsored Enterprises
U.S. House of Representatives
Washington, DC 20515
The Honorable Scott Garrett
Ranking Member
Subcommittee on Capital Markets,
Insurance and Government
Sponsored Enterprises
U.S. House of Representatives
Washington, DC 20515
Dear Chairman Kanjorski and Ranking Member Garrett:
The undersigned business organizations and institutions, which represent entities from across a broad spectrum of the economy and all areas of the financial services industry, thank you for holding this very important hearing tomorrow on mark-to-market accounting practices.
The United States and the global economy have undergone a period of almost unprecedented strain and challenge. The falling prices of real estate related assets have ground the securitization markets to a halt, dried up liquidity, and frozen credit availability. The resulting illiquid and non-functioning markets and related impacts have cascaded throughout the economy, causing severe market dislocations and job losses.
While there are many causes for this crisis, the procyclical impacts of certain mark-tomarket accounting principles have exacerbated the situation. Accounting rules did not cause this crisis. However, the inability of businesses, investors, and government to properly value assets in disorderly markets has created uncertainty and a loss of confidence that has led to a selfreinforcing cycle of write-downs and further economic contractions.
We recognize that accounting standards should be developed and governed by the appropriate bodies. Further, we believe the appropriate course is not the wholesale abandonment of appropriate application of fair value accounting principles, but rather the immediate correction to better principles-based financial reporting. Each of our organizations has jointly or individually proposed short-term and long-term solutions to the unintended consequences that have arisen from the application of mark-to-market accounting standards. While the Securities and Exchange Commission ("SEC") and the Financial Accounting Standards Board ("FASB") have taken some incremental action to facilitate the use of mark-to-market accounting in disorderly markets, the scope of the changes has not been adequate, nor has the pace been consistent with the crisis conditions that exist.
With the upcoming subcommittee hearing on mark-to-market accounting, we write to you today to express our concerns for the need to correct the unintended consequences of mark-to-market accounting. We do not ask that Congress write accounting rules. Rather, it is incumbent that the appropriate bodies understand that a pace of business-as-usual is unacceptable. Let us be clear, real economic losses should be recognized and are necessary for orderly markets. However, the recognition of losses that do not have a basis in economic reality is unsustainable in any environment. Appropriate changes in mark-to-market accounting should not wait until mid-year or year-end. That will only allow the spiral of accounting driven financial losses to continue.
Our hope is that these hearings ask the tough questions and stimulate immediate action that makes necessary adjustments in both the accounting treatment and guidance so that economic recovery is not impaired by the application of flawed rules. We stand ready to work with all willing participants to bring about this goal in a rational and expeditious manner.
Sincerely,
American Bankers Association
American Council of Life Insurers (ACLI)
American Financial Services Association
Certified Commercial Investment Member Institute
Commercial Mortgage Securities Association
NAIOP, the Commercial Real Estate Development Association
The Council of Federal Home Loan Banks
Financial Services Roundtable
Group of North American Insurance Enterprises
Independent Community Bankers of America
Institute of Real Estate Management
International Council of Shopping Centers
Mortgage Bankers Association
National Association of Home Builders
National Association of Realtors
Pennsylvania Association of Community Bankers
Property Casualty Insurers Association of America
The Real Estate Roundtable
The U.S. Chamber of Commerce
Federal Home Loan Bank of Atlanta
Federal Home Loan Bank of Boston
Federal Home Loan Bank of Chicago
Federal Home Loan Bank of Cincinnati
Federal Home Loan Bank of Dallas
Federal Home Loan Bank of Des Moines
Federal Home Loan Bank of Indianapolis
Federal Home Loan Bank of New York
Federal Home Loan Bank of Pittsburgh
Federal Home Loan Bank of San Francisco
Federal Home Loan Bank of Seattle
Federal Home Loan Bank of Topeka
Cc: The Members of the House Committee on Financial Services