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Market Value Accounting And The Bank Balance Sheet

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  • DAVID L. MENGLE

Abstract

Market value accounting for depository institutions is frequently suggested as a means of limiting losses to the deposit insurance funds. But opponents argue that market value accounting is too costly to be worth the effort. This article examines each balance sheet category to determine the feasibility of marking bank portfolios to market. One can assume that almost two‐thirds of the asset side and over half of the liability side already are at market. In addition, securities and loans to less‐developed countries are traded in secondary markets. Thus, the major cost of market value accounting would be computing current values of commercial loans through discounted cash flow analysis. But efforts now are under way in the private sector to develop less costly ways to determine market values. If market value accounting is adopted, then it will likely have its greatest effect on institutions with large holdings of loans to less‐developed countries.

Suggested Citation

  • David L. Mengle, 1990. "Market Value Accounting And The Bank Balance Sheet," Contemporary Economic Policy, Western Economic Association International, vol. 8(2), pages 82-94, April.
    • Handle: RePEc:bla:coecpo:v:8:y:1990:i:2:p:82-94
    DOI: 10.1111/j.1465-7287.1990.tb00592.x
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    References listed on IDEAS

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    1. Flannery, Mark J & James, Christopher M, 1984. "Market Evidence on the Effective Maturity of Bank Assets and Liabilities," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 435-445, November.
    2. David L. Mengle, 1989. "The feasibility of market value accounting for commercial banks," Working Paper 89-04, Federal Reserve Bank of Richmond.
    3. Edward J. Kane, 1985. "The Gathering Crisis in Federal Deposit Insurance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262611856, December.
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    1. Cornett, Marcia Millon & Rezaee, Zabihollah & Tehranian, Hassan, 1996. "An investigation of capital market reactions to pronouncements on fair value accounting," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 119-154, October.

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