The new Frank-Dodd act on financial reform contains a section creating a Financial Stability Oversight Council, with one of its tasks being the review of (and commenting on) any proposed changes in accounting or auditing standards.  A letter to one of the Council’s member agencies begins as follows:

“The American Bankers Association (ABA) respectfully requests that the Financial Stability Oversight Council, in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act, examine the impact of a recent accounting proposal that will have a significant impact on the financial system. “Fair value accounting” (also known as “mark to market accounting”) is being proposed by the FASB for all financial instruments.  For banking institutions, whose primary assets and liabilities are financial instruments, such accounting could dramatically change banking products and services as well as change how banking institutions are viewed by shareholders, depositors, and regulators.”

The letter from Edward Yingling of the ABA to Timothy Geithner of the Treasury goes on to list several perceived shortcomings of the FASB’s proposal.  Interestingly, the letter asserts that the proposed standard hampers international accounting convergence, even though the proposal is generated from the joint IASB/FASB project on financial instruments.  The two Boards are handling this topic in a non-synchronized manner, but I was still surprised that the letter cast it as a step back from convergence.

Under an early version of the financial reform legislation, the Council would have had a more direct effect on FASB standards – all changes in standards would have to be approved by the Council, at least before they were applied to banks.  Fortunately, the final version of the bill limits the Council to writing comment letters.

I am interested to see if the Council will add another straw of dissent on the back of this FASB proposal.  Or will the non-banking members of this Council end up supporting the FASB’s proposal?  Or will they stay out of the fight?