This Year’s Battle Over Mark-To-Market Versus Mark-To-Model Accounting Was Worth The Fight

It became clear as the past year’s liquidity crisis deepened, that the banking industry would need to deal with the best way to determine the fair value of asset-backed securities. The mark-to-market theorists wanted to continue valuing these at their current market price; whereas, the mark-to-model advocates said fair value should be based upon expected future cash flow. The reasoning for the change was based on the fact that although the market for these securities had collapsed, the underlying assets were still performing. In April 2009 the Federal Accounting Standards Board (FASB) amended its guidance to provide a way to distinguish the credit and noncredit components of impaired debt securities. Now only the charge related to credit is recorded in earnings and Tier 1 capital. Banks welcomed the FASB action, but now these institutions need to be especially prepared to provide documented analysis for their decisions. Mark-to-model isn’t going “easy” on banks. Rather it enables the reporting of real economic value without penalties for long-term investors in an illiquid market.

To gain further insight into the mark-to-market debate read the full Douglas Wilding article, “This Year’s Battle Over Mark-To-Market Versus Mark-To-Model Accounting Was Worth The Fight” which was published in the June issue of Western Independent Magazine.

Doung Wilding on the Mark to Market Debate