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Briefing

Bank Downgrades

Appears in: Advanced Economies, Europe, North America, Finance and Banking, United States, Banks

Critical Issues

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Background:

Mark-to-market accounting, which is known alternatively as MTM or fair value accounting, is a method of appraising a company's assets that seeks to price securities or other holdings at their current market value—based on the most recent sale price of the asset in a free market--rather than at price at which the company bought the security. This method came into the crosshairs during the financial crisis of 2008. As some financial companies faced a liquidity crunch and were forced to liquidate assets at low, "firesale" prices, other firms holding similar assets complained that these price points did not reflect the true market value of their holdings, and that marking the assets to unrealistically low firesale market prices would result in cascading further liquidations.

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