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SEC's Schapiro: Flexibility Likely Coming In Mark-To-Market

UPDATED

SEC Chairman Mary Schapiro said moments ago in a House hearing that new guidance in mark-to-market accounting -- which should give firms holding distressed assets some flexibility in accounting for them -- ought to be coming in the second quarter of this year.

This will be good news to Wall Street, where banks are being hammered by the toxic assets on their books that hard-and-fast mark-to-market accounting rules force them to value at near-zero.

Schapiro said her agency has pushed the Financial Accounting Standards Board (FASB) -- which, with the SEC, oversees corporate accounting -- to provide new guidance to accountants "that will help people understand how to value illiquid assets in distressed markets."

Schapiro said that current mark-to-market rules -- which force firms to value assets on their books at the price they would bring if they were sold today -- have created "a situation of really dire consequences" because so many big banks are holding toxic assets that will be worth something at some point but today, are worth almost nothing.

Simply put, mark-to-market accounting rules, enforced by the SEC and FASB, require a company to value -- or "mark" -- assets on its books based on the price they would bring if they were sold today.

In theory, mark-to-market provides good information for potential investors and prevents businesses from assigning any value they choose -- likely a higher one -- to things they own.

But mark-to-market can cripple businesses when no market for an asset exists, like now.

Some have called for the suspension of mark-to-market accounting to allow the big banks to get back on their feet but others argue against it, saying that killing the accounting rules would give companies incentive to create balance sheets that are pure fiction.

Schapiro: Flexibility Needed In Mark-To-Market

11:02 A.M.: Shapiro said that mark-to-market accounting rules should remain, but that there needs to be "better application and better judgment" in applying them, "so assets are not written down to fire-sale prices."

What seems to be gaining some steam right now is the view espoused by Schapiro -- reworking the mark-to-market rules to give companies more leeway to make judgments on the value of assets rather than forcing them in a draconian fashion to write them down.

Fed Chairman Ben Bernanke said likewise yesterday at a speech to the Council on Foreign Relations.

Schapiro: We Need To Pay More Bounties

10:32 A.M.: Schapiro said that her agency is "actively considering" expanding payments to whistleblowers who turn in those who violate securities laws.

Schapiro said that the SEC currently pays "bounties" only to whistleblowers who turn in insider-traders.

"We are actively considering" asking Congress to give the SEC expnaded abilities to pay bounties to reward other whistleblowers, Schapiro told a subcommittee of the House Appropriations committee.

The SEC was pilloried for ignoring or failing to adequately pursue warnings about alleged Ponzi schemer Bernie Madoff brought by Boston accountant Harry Markopolos.

You can read Schapiro's testimony here.

-- Frank Ahrens
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By Frank Ahrens  |  March 11, 2009; 11:52 AM ET
Categories:  The Ticker  | Tags: Bernie Madoff, Mary Schapiro, SEC, mark to market  
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