Aug. 5, 2009 (United Press International) -- The Financial Crisis Advisory Group, an obscure, relatively independent U.S. regulator, said that accounting rules were best left up to accountants.
The Financial Crisis Advisory Group, which advises the Financial Accounting Standards Board, said in a report that it was growing "increasingly concerned about the excessive pressure placed on the two Boards," referring to the FASB and its worldly sibling, the International Accounting Standards Board, The Washington Post reported Wednesday.
At issue, the Post reported, is the persistent problem of valuing loans on a market-to-market basis or based on purchasing price, a concern the FASB is reviewing and could shift the bottom line value of banks enormously.
Market-to-market refers to valuing loans and other assets based on the price they would fetch in the marketplace. Its legitimacy is merely a matter of debate since 45 banks used the system, made permissible this year, to boost first quarter earnings, the Post said.
For two financial firms, Prudential Financial (NYSE:PRU) and Bank of New York Mellon, the accounting change turned first quarter reports from red to black, the newspaper said.
But the implications are not so much the shift in the value of a bank if all banks abide by the same rules. The greater impact would be in how banks conduct their business in the future -- holding onto assets longer or selling sooner.
The relatively independent accounting board answers only to the Securities and Exchange Commission, which is studying another obscure market ploy known as flash trading.
The system works like the con game that amused fans of the movie, "The Sting."
In the movie, in an act of delicious revenge, con men played by Paul Newman and Robert Redford set up a phony betting office, then simply delayed the broadcast of a horse race a half a minute or so, allowing them to know the winner moments before the betting windows were closed.
Flash trading works in a similar way. With sophisticated computers, some traders catering to select investors can glance at trade orders for 30 milliseconds before they go through the system, allowing them to alter their own positions before the devil knows about it, as they say.
On Tuesday, SEC Chairwoman Mary Schapiro said the regulator would look into the practice, The New York Times reported. "There is the danger that significant private markets may develop that exclude public investors," Schapiro said.
In global markets, U.S. stock indexes pulled higher Tuesday, but Asian markets failed to follow suit Wednesday.
The Nikkei index in Japan dropped 1.18 percent. The Hang Seng index in Hong Kong fell 1.45 percent. In Australia, the S&P/ASX dropped 1.04 percent, while the Singapore Straits Times index lost 1.58 percent.
In midday trading in Europe, the FTSE 100 gained 0.45 percent in Britain, while the DAX 40 in Germany rose 0.32 percent. The CAC 40 in France rose 0.76 percent. The pan-European DJStoxx 600 rose 0.8 percent.
