Combining Historical Cost and Fair Value

Lin, Haijin; Lu, Tong

doi:10.2139/ssrn.1695216

SSRN Journal

2010

DOI: 10.2139/ssrn.1695216

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Combining Historical Cost and Fair Value

Haijin Lin

Tong Lu

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2011

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“…Lu, Sapra, and Subramanian (2012) demonstrate that MTM induces a tension between the risk-shifting and the debt-overhang problem with investments. Lin and Lu (2014) also find that MTM induces a tension in the socially optimal investment decision. Corona, Nan, and Zhang (2013) study banks' voluntary choices of MTM, present an interesting possibility of multiple equilibria, and link the multiplicity to the recent financial crisis.…”

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confidence: 69%

Where Does the Information in Mark-to-Market Come From?

Bleck

Gao

2011

SSRN Journal

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We study the effects of mark-to-market accounting (MTM) for banks following the originate-to-distribute lending model. Banks have expertise in originating loans but it is costly for them to retain the loans on their books. We study how the accounting measurement of the retained loans affects the banks' origination and retention decisions.We show that, relative to historic cost accounting (HC), MTM has three consequences.First, it improves the accuracy of loan valuation ex post. Second, it forces banks to retain more risk exposure on their own books. Finally, it can reduce ex-ante origination efforts and lower the average quality of loans in the economy. To the extent that lower loan quality and banks' excessive risk exposure are two important ingredients for the recent financial crisis, we identify one mechanism through which MTM could contribute to financial crises.

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confidence: 69%

Where Does the Information in Mark-to-Market Come From?

Bleck

Gao

2011

SSRN Journal

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Combining Historical Cost and Fair Value

Cited by 1 publication

References 33 publications

Where Does the Information in Mark-to-Market Come From?

Where Does the Information in Mark-to-Market Come From?

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