Tuesday, March 10, 2009

Fed Chairman Bernanke on Systemic Risk on CNBC

Federal Reserve chairman Ben Bernanke says the Treasury and Fed will take any necessary steps to ensure banks have enough capital and liquidity. Bernanke also argued that regulators should identify the weak parts of controversial mark-to- market accounting rules, which require daily revaluing of assets, and try to make some improvements.

"We all acknowledge that in periods like this when some markets don't exist or are highly illiquid that the numbers that come out can be misleading or not informative," Bernanke said at a Council on Foreign Relations event in New York. "We need to provide more guidance to financial institutions about what are reasonable ways to address the valuation of assets that are traded at all in highly problematic markets."

Also known as "fair value" rules, mark-to-market is an accounting methodology that requires banks and other corporations to assign a value to a financial product, such as a mortgage security, based on the current market price for the product or similar product. However, the market for troubled mortgages securities and other illiquid assets owned by banks have frozen up, making valuation of these securities more difficult.