Today is Robert Herz’s last day as chairman of the Financial Accounting Standards Board (FASB).

It is also the last day the FASB will be accepting written comments on a controversial proposal to expand fair value accounting.

As I write this, the FASB has posted 1,350 comment letters regarding its latest fair value proposal. I would wager that this is a record number of comments for a FASB exposure draft, but in light of the fact that the standards-setter has been creating rules for 37 years, I’m not so sure it would be a wise bet.

As for the circumstances behind Herz’s exit, it’s the opinion of this FASB watcher (and others) that behind the wealth of comments resides a clue.

But first, let’s review some recent history. Herz’s departure was disclosed by FASB in a late-August press release that stated the standards-setting body would be changing its membership structure for the second time within 3 years.

The first change followed a controversial February 2008 vote that approved a reduction in the number of board members from seven to five. Now, FASB says that it plans to reverse itself and return to a seven-member board following Herz’s exit.

You can’t help but wonder whether the standards-setter is currently nursing a case of whiplash. Of course, times do change, and you could argue that the last 30 months have been a conduit of economic alteration as vast as any in our history.

Let’s turn back the clock. Back in February 2008, George W. Bush was in the White House, Christopher Cox was SEC chairman, and Lehman Brothers Holdings was reporting a $489 million first-quarter profit.

On the FASB’s early 2008 menu, the adoption of international accounting standards was designated as the main course, while fair-value accounting – not yet at full boil – was left simmering to one side.

It was here, in a closed-door session, that FASB’s governing body, made up of 13 trustees, voted to approve the reduction. But that’s not all. The trustees decreed that a board member vote would no longer be required to add or remove items from the FASB’s agenda. Instead, FASB’s governing body elected to permit FASB’s chairman to set the board’s agenda and priorities.

And so from that February day forward, Herz – wielding powers no FASB chairman before him had ever possessed – set out to complete the heavy lifting required to converge America’s Generally Accepted Accounting Principles (GAAP) with those standards being issued by the International Accounting Standards Board (IASB) of London. By all accounts, Herz was dedicated to the task, so much so that he was frequently mentioned in the press as a probable successor to IASB chairman Sir David Tweedie, who had announced a June 2011 retirement date.

To FASB watchers, it seemed as if nothing could now stand in the way of Herz completing his work. Then came the greatest financial crisis since the Great Depression, a development that has increasingly put the accounting rulemakers at odds with the banking lobby.

Financial institutions complained that their earnings losses were being worsened by the fact that they had to now be reported at market value in order to comply with the fair-value rule. In time, the agenda-setting powers that were intended to help Herz marshal a convergence of global standards began to be viewed differently by members of the banking lobby, who quickly brought fair value to full boil.

The latest fair-value proposal sparking the ire of the banking industry requires banks to use market prices to value loans to both corporations and consumers. The banking lobby has noisily opposed the measure, saying that it does not make sense to assign market prices to loans that will never be sold. Its efforts have led to a wealth of comments and perhaps to the early departure of a chairman who sought out power to facilitate convergence, but instead ended up feeding divergence. ###