WASHINGTON, July 21 — Mark-to-market accounting, the practice of valuing assets and liabilities at current market prices, remains embedded in U.S. financial reporting despite a long and volatile history that has repeatedly reshaped the strategic calculus of regulators, banks and corporations. The method, now part of Generally Accepted Accounting Principles (GAAP) since the early 1990s, has been both blamed for crises and credited with exposing them—a duality that keeps it a live issue on the financial chessboard. The roots of the debate go deep.
In the 1800s, marking to market was common practice in the United States, and contemporaries blamed it for frequent recessions culminating in the Great Depression and a wave of bank collapses. That pattern prompted action in 1938, when the Securities and Exchange Commission advised President Franklin Roosevelt to abolish the approach.
He did so. It took nearly half a century for the method to return, reemerging in the 1980s among major banks and corporations. That resurgence brought fresh scandals beginning in the 1990s, with Enron and the collapse of Arthur Andersen among the most prominent.
Critics then charged that the use of mark-to-market, particularly when market prices are not objectively determined, enabled fraud. At the same time, failure to use the approach was blamed for the bankruptcy of Orange County.
The friction is strategic: historical cost accounting is simpler and more stable but cannot reflect current market value; mark-to-market can become volatile when prices swing sharply. Buyers and sellers have cited instances of unreliable information or over-optimistic expectations of future income and expenses as specific weaknesses.
The Mechanics and the Risks
The actual mechanics vary by asset class. For futures traders, marking to market works through daily margin adjustments; the Chicago Mercantile Exchange marks positions twice daily. Over-the-counter derivatives such as interest rate swaps are not exchange-traded, so their market values are not objectively determined, and in the early years they were not marked to market frequently.
As the practice spread, some corporations and banks used it to commit accounting fraud, especially for assets where no objective price existed. That gap gave rise to “mark to model” valuations that relied on estimates rather than market quotations.
The strategic stakes are clear. When markets fluctuate dramatically, mark-to-market can amplify balance-sheet swings. Supporters argue it forces transparency; detractors counter that during a crisis it can accelerate losses and undermine financial stability.
That tension echoes the 1800s pattern, when the practice was linked to recurring recessions.
The Strategic Calculus Today
Mark-to-market remains part of GAAP today. Regulators and market participants continue to weigh the trade-off between faithful representation of current value and the volatility that can destabilize institutions. The broader stakes involve not only accounting rules but the systemic risk they can introduce—or reveal.
As the global financial landscape evolves, the debate over when and how to mark assets to market remains a central piece of the regulatory chessboard, one that has toppled firms and reshaped entire sectors before, and could well do so again.
