This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Mark-to-Market Accounting and Liquidity Pricing

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Franklin Allen () (Wharton School, University of Pennsylvania)
Elena Carletti () (Center for Financial Studies)

Additional information is available for the following registered author(s):

Abstract

When liquidity plays an important role as in times of financial crisis, asset prices in some markets may reflect the amount of liquidity available in the market rather than the future earning power of the asset. Mark-to-market accounting is not a desirable way to assess the solvency of a financial institution in such circumstances. We show that a shock in the insurance sector can cause the current value of banks’ assets to be less than the current value of their liabilities so the banks are insolvent. In contrast, if historic cost accounting is used, banks are allowed to continue and can meet all their future liabilities. Mark-to-market accounting can thus lead to contagion where none would occur with historic cost accounting.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.ifk-cfs.de/fileadmin/downloads/publications/wp/06_17.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Center for Financial Studies in its series CFS Working Paper Series with number 2006/17.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 35 pages
Date of creation: 07 Aug 2006
Date of revision:
Handle: RePEc:cfs:cfswop:wp200617

Contact details of provider:
Postal: House of Finance, Gr�neburgplatz 1, HPF H5, D-60323 Frankfurt am Main
Phone: +49 (0)69 798-30050
Fax: +49 (0)69 798-30077
Email:
Web page: http://www.ifk-cfs.de/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Birgit Pässler).

Related research
Keywords: Mark-to-market; Historical Cost; Incomplete Markets;

Other versions of this item:

Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Xavier Freixas & Dimitrios P. Tsomocos, 2004. "Book vs. Fair Value Accounting in Banking, and Intertemporal Smoothing," Economics Working Papers 771, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  2. Franklin Allen & Douglas Gale, 2005. "From Cash-in-the-Market Pricing to Financial Fragility," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 535-546, 04/05. [Downloadable!] (restricted)
  3. Mark Carey & Rene M. Stulz, 2005. "The Risks of Financial Institutions," NBER Working Papers 11442, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Franklin Allen & Douglas Gale, 1976. "Optimal Financial Crises," Center for Financial Institutions Working Papers 97-01, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
    Other versions:
  5. O'Hara Maureen, 1993. "Real Bills Revisited: Market Value Accounting and Loan Maturity," Journal of Financial Intermediation, Elsevier, vol. 3(1), pages 51-76, October. [Downloadable!] (restricted)
  6. Allen, Franklin & Carletti, Elena, 2006. "Credit risk transfer and contagion," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 89-111, January. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Opazo, Luis & Raddatz, Claudio & Schmukler, Sergio L., 2009. "The long and the short of emerging market debt," Policy Research Working Paper Series 5056, The World Bank. [Downloadable!]
Statistics
Access and download statistics

Did you know? IDEAS also indexes books.

This page was last updated on 2009-11-11.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.