SEC, Treasury not discussing suspending fair value rule

WASHINGTON (Reuters) - The U.S. Treasury Department and the Securities and Exchange Commission are not discussing the suspension of a controversial fair value accounting rule blamed for billions of dollars in bank losses, a source familiar with matter said on Thursday.

Speculation that the U.S. government would suspend the accounting rule surfaced earlier on Thursday, sending U.S. stocks higher. But the source said no such discussions had taken place between the Treasury Department and SEC.

Key policymakers have suggested that the rule could be amended. Sen Christopher Dodd, the Democratic chairman of the Senate Banking Committee, said it might be possible to modify fair value accounting rules for banks facing steep write-downs of troubled assets without abandoning the underlying accounting standard.

Dodd told reporters on Wednesday evening that at least one former bank regulator was discussing how to approach the difficult issue without "walking away from" fair value (also called mark-to-market) standards.

The issue of how to value distressed assets held by U.S. banks has been one of the most difficult challenges in constructing a bank rescue plan, according to industry sources and lawmakers.

The Obama administration is expected to outline next week how it plans to handle the second $350 billion of a $700 billion financial rescue fund also known as the Troubled Asset Relief Program (TARP).

If the government buys some bad assets as part of the rescue, it could force banks to drastically write down billions of similar assets. That could create further instability unless changes are made to the accounting rule which requires assets to be valued at market prices.

Earlier in the week, Democratic Rep Barney Frank, the influential chairman of the House Financial Services Committee, said the accounting rule should not be abolished but said it can make bad situations worse.

"One of the things I think we should be exploring is the extent to which you can retain mark-to-market but make the consequences discretionary with the regulators rather than automatic," said Frank, a Democrat from Massachusetts.