Under pressure from legislators, federal regulators, big banks, and auditors, the Financial Accounting Standards Board (FASB) has voted to postpone for a year a proposed accounting rule that would force banks to put more of their assets on their balance sheets. The rule — and the deferral — apply to all banks that follow the U.S. GAAP rules in reporting their accounts.

FASB Chairman Robert Herz said the board had decided to follow a staff recommendation to delay the rule until January 2010 to give companies time to adjust and to raise the huge amounts of new capital the change would require.

Neither Herz nor other board members were happy with the decision. “It does pain me to allow something that has been abused by certain folks, to let that go on for another year,” Herz said. Added FASB member Lawrence W. Smith, “In my mind, things have been broken for a while, and it’s about time we fixed the problem.”

Once it goes into effect, the rule will require corporations to move assets and liabilities onto their balance sheets that can currently be hidden as so-called special purpose entities. For financial institutions, this will affect assets that include mortgages, credit card loans, and student loans that are pooled into securities. The likely result will be a lot more required capital. Banks could be forced to put as much as $5 trillion of assets onto their balance sheets by the rule, according to a Citibank estimate.

The 2001 Enron collapse raised concerns and prompted a tightening of accounting rules. Yet another red flag went up last year when some banks began to suffer losses from structured investment vehicles and other entities that were kept off the balance sheet.

The off-balance sheet vehicles allowed banks to increase their income from certain debt assets while, at the same time, holding little capital against the exposures. All that would change dramatically when and if the rule goes into effect.

Proponents of the delay argue that the rule change could further weaken a number of large banks already struggling with losses from the mortgage debacle and flagging economy.

FAS Board members said they had determined that the original schedule for the proposed accounting changes would not give regulators sufficient time to adjust their capital requirements. Those that support the delay include the Fannie Mae and Freddie Mac regulator, the Office of the Comptroller of the Currency (OCC), and the Federal Reserve.