MARK-TO-MARKET RULE: CAN FAIR VALUE ACCOUNTING BE FAIR DURING A FINANCIAL CRISIS?

The aim of this article is to analyze the FAS 157 rule, known as Mark-to-Market Rule. We have shown that this by definition pro-cyclical rule worsened severely U.S. Banking Crisis of 2007. The article contains discussion of reasons why US authorities adopted this rule for the third time in its history while the two previous cases are also discussed. The US authorities did implement such rule always just ahead of recession or financial crisis to ease this rule in days when economy was long due for a rebound. Our analysis shows this rule is counter-effective and brings extreme costs for the economy.