Did Fair-Value Accounting Contribute To The Financial Crisis?

The recent financial crisis has led to a major debate about fair-value accounting. Many critics have argued that fair-value accounting, often also called mark-to-market accounting, has significantly contributed to the financial crisis or, at least, exacerbated its severity. In this paper, the authors assess these arguments and examine the role of fair-value accounting in the financial crisis using descriptive data and empirical evidence. Based on the analysis, it is unlikely that fair-value accounting added to the severity of the 2008 financial crisis in a major way. While there may have been downward spirals or asset-fire sales in certain markets, they find little evidence that these effects are the result of fair-value accounting.