Bernanke Tells Senate: Auction Will Help Facilitate Held-To-Maturity Vs. Fire Sale Price

Sep 24th 2008
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By Edith Orenstein, FEI Financial Reporting Blog - During testimony before the Senate Banking Committee on Sept. 23, Federal Reserve Board Chairman Ben Bernanke advocated against suspending mark-to-market (also called fair value) accounting, but stated that determination of ‘hold to maturity’ estimated valuations through the U.S. Treasury Department’s proposed reverse auction process would provide banks with “a basis for valuing those assets” and so the banks “will not have to use fire-sale prices,” and “their capital will not be unreasonably marked down.” (Thus, while not supporting a move away from ‘fair value’ being defined as a ‘market to market,’ Bernanke implied that the ‘hold to maturity’ price, if offered at auction by Treasury, would establish a new reference point or baseline for ‘fair value’ vs. the current ‘fire sale’ prices offered in the current illiquid market.)

Read more from the Senate hearing here.


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