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Blankfein: Mark-to-Market Keeps Us Honest

By Dan Weil   |   Thursday, 12 Feb 2009 12:55 PM

Many bank experts have blamed mark-to-market accounting rules for some of the woes suffered by U.S. financial institutions.

They say it is unfair that banks have to value their toxic securities at currently depressed levels when releasing their financial statements.

Not Goldman Sachs CEO Lloyd Blankfein.

The mark-to-market regulations shouldn’t be abandoned, he writes in a Financial Times opinion piece.

Indeed the rules should be strengthened, he argues.

For Goldman, those rules represented “a key contributor to our decision to reduce risk relatively early” in the credit crisis, Blankfein writes.

Goldman, along with Morgan Stanley, has fared the best of the big five investment banks during the financial crisis. Bear Stearns and Lehman Brothers evaporated. Merrill Lynch ended up running into the arms of Bank of America, which is now struggling with the brokerage’s losses.

“This process can be difficult, and sometimes painful, but I believe it is a discipline that should define financial institutions,” Blankfein maintains.

“If more institutions had properly valued their positions and commitments at the outset, they would have been in a much better position to reduce their exposures.”

Congress is contemplating changes in accounting rules as it considers an overhaul of the financial regulatory system, although both the Securities and Exchange Commission and the Financial Accounting Standards Board back the status quo.

Recently, everyone from House Financial Services Committee Chairman Barney Frank to the American Bankers Association to corporate titans like GE’s Jeffrey Immelt and Blackstone Group Chairman Steve Schwarzman have railed against mark-to-market rules.

Schwarzman called fair-value accounting a “major contributor to the financial crisis” at a conference last year.

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Many bank experts have blamed mark-to-market accounting rules for some of the woes suffered by U.S. financial institutions.They say it is unfair that banks have to value their toxic securities at currently depressed levels when releasing their financial statements.Not...
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