The Financial Accounting Standards Board has finalized its crisis guidance on how to apply fair value measurement rules in the current, seized market environment, and the banking sector is already up in arms.

The American Bankers Association fired off another letter to Christopher Cox, chairman of the Securities and Exchange Commission, asking the SEC to nullify the fast-tracked guidance because it doesn’t give financial institutions the freedom they seek to overlook illiquidity in valuing securities.

“Regardless of the valuation technique used, an entity must include appropriate risk adjustments that market participants would make for non-performance and liquidity risks,” FASB wrote in its guidance. In its board meeting Friday to finalize the guidance, FASB staff emphasized and board members agreed that Financial Accounting Standard No. 157 Fair Value Measurements allows entities to set aside market pricing when a particular transaction is distressed, but it does not make the same provision when the entire market is distressed.

FASB Chairman Robert Herz conceded “when we wrote 157 we probably didn’t contemplate the current situation.” Still, he said, “the framework of 157 does contemplate that there may be inactive markets for certain assets, and in such situations it’s important to apply both the objective of 157 and the framework.” He said judgment is necessary. “One cannot become mechanical one way or the other, neither exclude techniques or observations that may exist or to automatically base the valuation solely on such things if in fact they may not on their own provide a relevant benchmark.”

ABA President Edward Yingling appealed to Cox to override FASB’s guidance and issue guidance of its own that says “clarifies that fair value in an illiquid market does not include forced or distressed sales.” ABA says FASB’s guidance is too narrow and too complex, as large banks have too many transactions to study with the guidance in mind and small banks don’t have the resources to perform the required procedures. ABA also is demanding guidance on “other than temporary impairment,” or determining when an asset value is troubled temporarily vs. permanently.