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CUNA Congress should direct new look at mark-to-market
WASHINGTON (3/13/09)—Mark-to-market accounting, with the current volatility in the markets, is having an opposite effect than it was designed for and the U.S. Congress should instruct the appropriate standards-setting body to develop a better approach for illiquid assets, wrote the Credit Union National Association (CUNA) Thursday. CUNA submitted a statement on credit union concerns for the record of a hearing on the practices and implications of mark-to-market accounting conducted by the House Financial Services subcommittee on capital markets, insurance, and government-sponsored enterprises. (See related story: FASB commits to expedited mark-to-market guidance.) CUNA wrote that the accounting practice in question was developed to enhance the accuracy of public financial disclosures. However, it actually skews reporting in the present economic environment when applied to certain instruments, CUNA warned. Mark-to-market accounting requires assets be valued at current market prices. Critics say this can force assets to be marked down to artificially low prices due to the current absence of a market for many asset classes, such as mortgage-backed securities (MBS). Natural person credit unions do not generally hold many assets that must be marked to market. However, more flexible investment authority for corporate credit unions has allowed such investments and writing those down under mark-to-market rules has a negative impact on the whole system, CUNA said. CUNA backed a recent statement by Federal Reserve Board Chairman Ben Bernanke that further review of accounting standards governing valuation and loss provisioning would be useful. Such review could result in modifications to the accounting rules that reduce their procyclical effects without compromising the goals of disclosure and transparency. Therefore, CUNA requested that Congress direct the Financial Accounting Standards Board (FASB) or the Securities and Exchange Commission (SEC) to address expeditiously the problems mark-to-market standards have created, including their application to assets that are other-than-temporarily impaired--or OTTI. Both FASB and the SEC have made recent recommendations on how financial institutions and others should account for illiquid assets, but neither goes far enough and anticipated further action will come too late to be of help, CUNA wrote. CUNA reiterated its recommendation to President Barack Obama that a White House Task Force be established to address mark-to-market concerns and added its endorsement of a plan to separate impairment of an asset due to credit losses from losses due to liquidity. Use the resource link below to read the entire statement.


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