New Study Says Mark-to-Market Not to Blame

A new study published by the Federal Reserve Bank of Boston says that mark-to-market accounting had only a minor impact on large financial institutions during the financial crisis.

Sanders Shaffer, Director of Accounting Policy and Analysis at the Boston Fed maintains that:

Capital destruction was due to deterioration in loan portfolios and was further depleted by items such as proprietary trading losses and common stock dividends. These are a result of lending practices and the actions of bank management, not accounting rules.

Mr. Shaffer, who studied banks with at least $100 billion in assets, did not find any evidence that mark-to-market rules drove banks to sell assets at distressed prices. Instead, to raise the capital they desperately needed, institutions mostly tapped government programs and the debt and equity markets.

For most banks in the sample, fair value adjustments had only a small percentage impact on regulatory capital. Mr. Shaffer did not ascertain any link between fair value and capital destruction.



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