Fed’s Duke: accounting changes need global reach

WASHINGTON — Changes in accounting standards, rules and policies for financial institutions must be coordinated globally in the effort to help avoid a recurrence of the economic crisis, Federal Reserve Gov. Elizabeth Duke said Monday.

“Now that some measure of confidence has been restored and financial strains are receding, it is time to turn our attention to the lessons learned in the crisis,” Duke told an accounting industry audience on the first anniversary of the collapse of Lehman Brothers. “Accounting standard setters, regulators and policymakers around the world are discussing and proposing preventative measures. Now the challenge lies in integrating those changes smoothly and seamlessly.”

President Barack Obama is scheduled to speak on Wall Street later Monday to detail steps the government has taken to bring the economy back from the precipice, and to discuss plans to wind down the government’s role in the U.S. financial sector.

The Obama administration recently proposed stricter international standards for the capital reserves that banks are required to hold as a cushion against potential losses. The plan would require higher capital reserves for firms deemed to be so large and interconnected they pose a threat to the overall stability of the financial system.

Duke said the more stringent standards could constrain the availability of credit if they are accompanied by accounting standards that make it difficult for banks to rid their balance sheets of loans by selling them as securities.

Even with the economy recovering, banks’ extension of credit isn’t yet up to the level needed to fully pump up growth, said Douglas Duncan, chief economist of mortgage finance company Fannie Mae, which was seized by the government last September along with sibling company Freddie Mac.

The banking industry “has a long way to go to support the expansion,” said Duncan, who also addressed the gathering of the American Institute of Certified Public Accountants.

Duncan said he thinks the recession is over, but that “it will be a mild recovery.”

Duke, who is a member of the Fed panel that sets interest rates, said she was expressing her personal views and not representing the central bank’s position.