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The European Union wants its troubled banks to be on the same footing as troubled U.S. banks, prompting EU finance ministers to agree Tuesday to change how the mark-to-market accounting rule is applied in the third quarter.
Banks in the European Union will be allowed to bypass an accounting rule many are blaming for escalating the impact of the credit crunch and triggering fire sales of assets. According to a report by Reuters, French Finance Minister Christine Lagarde said: "In accounting, the American groups are authorized to transfer assets from their trading book, where they evaluate assets at mark-to-market. We feel this method should also be allowed to apply to establishments in Europe." Last week the Securities and Exchange Commission and the Financial Accounting Standards Board clarified the mark-to-market rules in an effort to deal with illiquid securities. The agencies said that in such cases, companies don't have to rely solely on market prices, but can use judgment to value assets more accurately. "We expect this issue to be solved by the end of the month with the objective to implement as of the third quarter, in accordance with the relevant procedures," the EU finance ministers said in a joint statement. The International Accounting Standards Board, an independent body that sets the accounting rules for over 100 countries, said last week it is "closely monitoring developments in the United States and other jurisdictions to avoid unnecessary inconsistencies in accounting treatments under [international financial reporting standards] and U.S. generally accepted accounting principles." But the EU directive is likely to put pressure on the rulemakers to make changes whether they like it or not. The IASB meets in London on Oct. 13-17 to consider aligning its mark-to-market rule with changes made in the U.S. FASB meanwhile meets on Friday to vote on amending fair-value rules and clarifying their application by providing an illustrative example to demonstrate how the fair value of a financial asset is determined when the market for that financial asset is inactive. - Donna Block See joint statement from EU finance ministers Donna Block is a senior writer for The Deal. Categories Deal Video
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