MARKET VALUE ACCOUNTING AND THE BANK BALANCE SHEET
DAVID L. MENGLE
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. Copyright 1990 Western Economic Association International.
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