Dollars and Jens
Tuesday, September 06, 2011
mark-to-market accounting
Josef Ackermann just gave a terrifying speech about the fragility of the Euro banking sector right now.

At a conference in Frankfurt he said, "It is an open secret that numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels."
This isn't the first place I've read that. You'll remember that there was some discussion of whether mark-to-market was a mistake three years ago on this side of the Atlantic, or at least whether some debt-like assets should be allowed to stay on the books at a higher value than their market value if there was good reason to believe that the market value was lower for temporary liquidity reasons rather than risk-of-default reasons.

I think there was a stronger argument for supposing that the mortgage-backed securities at issue three years ago were going to pay off eventually - not necessarily in full, but by more than their then-market values indicated - than there is today that the sovereign debt is not really risky. But that's just my visceral judgment.


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