‘People are really spooked, much more so than the news reports would give away.’ Those were the chilling observations of one FTSE 100 chairman after visiting the US in the wake of the sub-prime crisis.

The crisis, now estimated to involve losses of anywhere between $250bn (£128bn) and $400bn, has stoked anxiety in everyone from the lending and investments banks, the ratings agencies, insurers, politicians and, of course, the central banks.

The fear has also reached other parts, not least the accountancy and financial reporting regulators. This group finds itself uncomfortably positioned on the horns of a dilemma: whether to help the troubled institutions through some sympathetic manipulation of the accounting standards or maintain their public interest role in increasing financial transparency?

Observers believe it is a real quandary that thrusts the regulators into the heart of the battle to mitigate the effects of the crisis. One expert close to the International Accounting Standards Board says: ‘Standard setters are feeling very torn.’

Press reports would make that difficult to believe. As George W Bush works on a fiscal solution to US economic grief, Conrad Hewitt (pictured), the Securities and Exchange Commission’s chief accountant and guardian of market transparency, called on the US accounting standard setter, FASB, to revise FAS140, the key rule on disclosing off balance sheet structures.

US commentators are already calling attention to the SEC’s behaviour and asking whether it sits well with the commission’s core responsibilities.That clash of priorities is seen by some as irreconcilable and as a result a core contributor to ‘financial meltdown’.

Professor Nouriel Roubini of the Stern Business School at New York University identified the dilemma as one of eight reasons why the Federal Reserve could not head off an impending disaster that could result in four successive quarters of economic shrinkage.

‘The Fed and financial regulators and supervisors are walking a very fine line between transparency/recognition of losses and forebearence.’

He writes that while transparency is understood as important, ‘there is also a recognition that under distressed and illiquid market conditions, too much transparency and too much marking to market may lead to a self-destructive cascade of asset prices, falling below medium-term fundamental values and the credit crunch getting worse’.

That insight seems to chime well with the idea currently doing the rounds here that troubled banks should be handled behind closed doors rather than in the full glare of publicity as has been the case with Northern Rock. With those sentiments abroad, the standard setters might feel very comfortable in massaging standards so that they aid the companies and banks rather than transparency.

That feeling could also be driven by a realisation that a completely free market is not the best structure for a global economy.

Over at the IASB, there is pressure to complete a project on accounting for consolidations in short order and to get it right. But officials say their priority is transparency, and ensuring that the final product remains a principles-based approach.

There is ‘absolutely no pressure’ to help out troubled institutions with some accounting trickery, according to officials and the focus will remain on transparency.
And that’s why one of the early ideas is a ‘parallel balance sheet’ identifying all the risks, if some special investment vehicles were to suddenly come back on the balance sheet proper.

This, it is understood, is probably an exercise in bringing together information that is already out there in public documents, but currently not presented in a coherent, risk-focused manner.

If the IASB stands by its transparency role, and if the economic environment becomes more desperate, it’s not beyond the realms of possibility that regulators, especially across the Atlantic, could decide that a quiet word is in order because no one will want to be seen as contributing to the ‘meltdown’ Nouriel believes is possible.

IASB chairman Sir David Tweedie, a man famously quoted as willing to cross a road to pick a fight, will need all his reserves to resist, if it comes.