Using a strict market value accounting might cause regulators to

Question

Quizplus · Accepted Answer

Strict market value accounting means valuing assets and liabilities at current market prices, which can result in significant fluctuations in a bank's net worth. If regulators rely solely on market value accounting to determine a bank's financial health, they may close the bank too early under prompt corrective action requirements, leading to unnecessary disruptions in the economy. Therefore, regulators must strike a balance between market value accounting and other accounting methods such as book value accounting.

Using a Strict Market Value Accounting Might Cause Regulators to