As investors and regulators increasingly question the role of fair value measurements and mark-to-market accounting in contributing to the global economic downturn, a group of speakers weighed in at a panel discussion sponsored by the CFA Institute Centre for Financial Market Integrity.
Jeffrey Diermeier, president and CEO of the CFA Institute, posed a question to the members of the institute recently asking whether fair value requirements are aggravating the global credit crisis. Fifty-five percent of 2,006 respondents said yes, while 45 percent said no.
Of complaints by banks about mark-to-market accounting, he noted, "one of the responses oftentimes is, if this is too complicated for you, why are you in this business in the first place?"
"We believe fair value gives you more transparency into the underlying assets," said Russell Golden, director of technical application and implementation activities at the Financial Accounting Standards Board and chairman of the Emerging Issues Task Force.
Fair value and mark-to-market are likely to become more complicated issues as U.S. generally accepted accounting principles converge with International Financial Reporting Standards. "We are not prepared for convergence given the timeline," said Adam Hurwich, a managing member of Calcine Management. "It's being pushed through."
Hal Schroeder, director of relative value arbitrage at Carlson Capital, expects to see a gradual easing of the credit crunch as banks loosen their lending restrictions, first by making loans to only the most credit-worthy businesses and then going further downstream to riskier borrowers.
