By Anna Willard
BRUSSELS, Sept 2 (Reuters) - Plans by a global accounting standard setter to ease the credit crunch's impact on banks would makes their situation worse, French Economy Minister, Christine Lagarde said on Wednesday.
Banks have been forced to make huge writedowns on some assets as accounting rules require them to be valued at the going rate, a process known as fair value or mark-to-market.
Some assets have slumped in value or become untradable in the credit crunch. Policymakers say accounting rules amplified the crisis and must be changed.
The G20 group of industrial and emerging market countries agreed in April that standard setters should, by the end of 2009, simplify fair value rules and change how assets are valued, based on how liquid or tradable they are.
The International Accounting Standards Board (ASB), which draws up rules that are mandatory in France and the rest of the European Union, put forward plans in July to fast-track changes to its IAS39 fair value rule.
One part takes effect by December for banks to compile their annual report for 2009.
"Today, the proposals of the IASB regarding IAS39 are not satisfactory," Lagarde told reporters on the sidelines of an EU finance ministers' meeting.
A "level playing field" with the United States, which sets its own rules, was essential, she added.
"The proposal that was made in July by the IASB simply does not establish the level playing field and rather worsens the principle of fair value, the market value, under the pretext of simplification," Lagarde said.
This was "very clearly to the detriment of the collective interest which very clearly should take into account stability on the one hand and the length the assets are held on the other hand (on bank balance sheets)," Lagarde said.
The IASB had no comment.
Accounting industry officials say the G20 did not ask standard setters to reduce the scope of fair value but to simplify some aspects, which the IASB has proposed. While Lagarde asks for equal treatment with the United States, bankers there are alarmed that the U.S. Financial Accounting Standards Board has signalled it wants to go even further than the IASB and include a wider range of assets for marking to market.
Bank of France Governor, Christian Noyer, said on Tuesday it was vital that standard setters consider the need for financial stability when it comes to drawing up rules.
Accountants and auditors say accounting rules should simply give a snapshot of a company's health at a point in time and not be required to play a broader, on-going macro economic role.
The IASB and FASB have already been forced by policymakers to relax aspects of fair value, raising questions about their independence.
(Writing by Huw Jones, editing by Ron Askew)