|
EconStor >
Goethe-Universität Frankfurt am Main >
Center for Financial Studies (CFS), Universität Frankfurt a. M. >
CFS Working Paper Series, Universität Frankfurt a. M. >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/10419/25483
|
| | |
| Title: | | Mark-to-market accounting and liquidity pricing  |
| Authors: | | Allen, Franklin Carletti, Elena |
| Issue Date: | | 2006 |
| Series/Report no.: | | CFS Working Paper 2006/17 |
| 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. |
| Subjects: | | Mark-to-market Historical Cost Incomplete Markets |
| JEL: | | G21 G22 M41 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CFS Working Paper Series, Universität Frankfurt a. M.
|
| |
| | |
Download bibliographical data as:
BibTeX
|
| |
Share on:http://hdl.handle.net/10419/25483
|
Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.
|