Systemic Risk Council Essential

September 13, 2010 by · Leave a Comment
Filed under: Address to Congress, FASB, Forbes, SEC 

William M. Isaac, former chairman of the Federal Deposit Insurance Corporation (FDIC) during the saving and loan collapse of the 1980s, wrote an open letter to Senator Bob Corker (R-TN) in Forbes.
In the letter, Isaac maintains that, “Mark-to-market accounting senselessly destroyed over $500 billion of capital in our financial system, panicking the markets as banks reported massive paper losses while still producing large cash-basis profits.”
Mr. Isaac then argues that systemic risk oversight of accounting rules issued by the Financial Accounting Standards Board (FASB) and the Security Exchange Commission (SEC) is essential, “…particularly now that the FASB is proposing to extend mark-to-market accounting to nearly the entire balance sheet of banks, including loans. It is clear that the FASB is living in an ivory tower world in which accounting rules are divorced from economic and business reality, and the SEC has failed to provide effective government oversight.”
“If this proposal by FASB moves forward, it will spell the end of banking as we know it and will make it next to impossible for smaller businesses and consumers to obtain medium- and long-term credit,” Isaac cautions.
Isaac wrote the letter in support of Senator Coker’s amendment to the Financial Regulatory Reform Bill calling for, in part, a systemic risk council. He fears that if a systemic risk council is not give the authority to examine accounting pronouncements by the SEC and FASB, “the next crisis will be just around the corner.”
A systemic risk council was included in the Senate version of the financial regulatory reform bill recently passed. Its exact function is still being debated.
In conclusion, Bill Isaac rocks.