Bloomberg News

Consumer, Investor Groups Urge SEC to Reject Pleas to Ease Rule

October 15, 2008

U.S. Securities and Exchange Commission Chairman Christopher Cox should turn aside pleas by banks to suspend the accounting rule blamed for contributing to the credit crisis, investor and consumer groups said.

Easing the so-called fair-value rule would ``jeopardize already fragile investor confidence,'' the Council of Institutional Investors and the Consumer Federation of America wrote to Cox today. Fair-value, which requires companies to assess investments each quarter and report declines in values, ``helped expose'' weak credit and didn't cause the crisis, the groups said. The Center for Audit Quality and the CFA Institute also signed the letter.

The American Bankers Association has asked Cox to override guidance the Financial Accounting Standards Board released Oct. 10 on how to value assets in inactive markets, without changing the rule. FASB, which sets U.S. accounting rules, didn't adequately address the issue, the ABA wrote three days later.

Lawmakers and companies including insurer American International Group Inc. (AIG:US) say the fair-value rule exacerbates the credit crisis by forcing banks to write down assets they have no intention of selling to fire-sale prices. Proponents, including FASB, say fair-value adds to transparency and gives investors more information about public companies.

The consumer groups argued ``it is imperative at this critical juncture that we not engage in activities that would further obscure reality from investors and do more to damage the confidence in the marketplace.''

As part of a $700 billion bank rescue plan, which lets the Treasury buy mortgage securities and stakes in banks, the SEC must study the relationship between fair-value and the health of financial institutions.

The Council of Institutional Investors represents pension funds with more than $3 trillion in assets. The Center for Audit Quality and the CFA Institute represent accountants and financial consultants. The Consumer Federation of America is an advocacy group. All four organizations are based in Washington except the Charlottesville, Virginia-based CFA Institute.

SEC spokesman John Nester declined to comment on the letter.

To contact the reporters on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net; Ian Katz in Washington at ikatz2@bloomberg.net.

To contact the editor responsible for this story: Otis Bilodeau at obilodeau@bloomberg.net.


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