Changes in Mark-to-Market? FASB proposes new standards.
The Financial Accounting Standards Board is proposing that banks expand their use of mark-to-market accounting to include loans and other financial assets, as reported by the WSJ. Though marking assets to market values can make sense in a vaccum of financial analysis, the real world implications are huge. The problem is that markets, like historical costs, do not always represent the real value. Bigger than that though is the fact that financial statements can only provide limited, historical information. In a market moving and changing as fast as today's, trying to rely on information that can be up to several months old and that provides no predictive insight on where values will be, can create major issues, as we've seen. For example, making banks adjust their minimum capital based on asset values that may be outdated by the time their published doesn't seem like a good use of information.