Fed Chairman Wants Improvements on 'Mark-to-Market'

Federal Reserve Board chairman Ben Bernanke said current accounting and capital policies for financial institutions are excessively "pro-cyclical" and need to be reformed. "It is too difficult for banks to raise capital during an economic downturn," he said. "Regulatory capital should be built up during good times and drawn down during bad times in a manner consistent with safety and soundness," the Fed chief told a Council of Foreign Relations meeting. Determining asset values in illiquid markets can be "very difficult, to put it mildly," Mr. Bernanke said. But he encouraged the accounting standard setters to move "expeditiously" in their efforts to improve mark-to-market accounting. "[F]urther review of accounting standards governing valuation and loss provisioning would be useful, and might result in modifications to the accounting rules that reduce their pro-cyclical effects without compromising the goals of disclosure and transparency," the Fed chairman said.