Mark-to-market accounting has been blamed for being the catalyst, or even the cause, of the recent financial crisis. According to this argument, the extension of mark-to-market – the valuation of assets at putative market prices – to all credit portfolios in trading books made earnings look worse than they were and forced banks to seek dilutive capital injections. Mark-to-market, this argument goes, should be renounced in favour of valuing portfolios at their historical cost.

We do not endorse this view in any way and we firmly believe that measuring a bank’s trading portfolio at “fair value” is the only possible means of guaranteeing transparency and discipline.