Mark-to-Market Accounting
The cluster focuses on debates about mark-to-market accounting in banking, its accuracy, regulatory implications, comparisons to hold-to-maturity valuation, and historical contexts like SVB and Enron.
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I dunno, the reality is that we have mark to market accounting https://en.m.wikipedia.org/wiki/Mark-to-market_accounting
Why aren’t most assets marked-to-market, at least in some regular fashion?
You are arguing from the perspective that the mark to market is correct and perfectly or nearly perfectly knowable when that is not the case pretty much all the time. This bank was solvent according to the regulators until the day or a few days before it was taken over and yet could not find a buyer or raise capital. Why was that? It is because the accounting allowed to determine solvency allows hold to maturity and no marking to market on nearly perfectly knowable assets like MBS and this bank
This is the right answer. Everything that has a market should be marked to market. This should be the default decision until some kind of good reason it's given to do otherwise.
Many types of institutions have to mark to market on a ~constant basis, so it's not impossible. Yes there are certain asset classes (private companies, for example) that don't have easy or reliable marks (but people still do it anyway!). But at least for SVB the issue was not determining the market value, but that the market value was bad.
https://en.m.wikipedia.org/wiki/Mark-to-market_accounting
You don’t have to value it marked to market. You can value it as net present value of the hold to maturity value. That’s not a liquid price, but it’s the value if used as collateral against a credit line from the feds.
Do the 100 trillion in assets have to be marked to market, or can I make up whatever price I'd like and they have to accept it as valid? If it's the latter, that'll be no problem at all!
What you are describing is Mark to Model not Mark to Market. Mark to Market is what banks use and has little room for cheating. Mark to Model was banned after Enron.
Mark-to-market applies only where the value of an asset is at issue. If, for instance, you want your insurance company to have a minimum value for its assets, to insure that they can pay out in case they need to, then you don't care what that asset is earning. All you care about is the value of that asset when sold, so that the insurance company can use that money to pay off its obligations to you.Suppose I offered you $10,000 worth of stock in AIG as collateral for a $10,000 loan. When the v