I strongly agree and wanted to share a similar sentiment.
It is not as simple as “the market says the asset or liability is worth X, so you should too.” Businesses are usually going-concerns and it is not really that useful for the company to report itself as merely how things would go down if they were to liquidate today (though obviously considering that possibility is useful, especially if your business could be “runny,” and recording the fair value of HTM securities in a note to the financial statements allows readers, like Raging Capital Ventures, to contemplate that). Those liquidation values continue to require subjectivity (e.g., depends on the spreads for the assets and what if the blowup situation we’re talking about would spark fear and government intervention that would actually support the assets’ values?! [which is exactly what happened with SVB’s assets actually]), and of course are not even perfectly reflected by MTM values, so their utility is not as straightforward as it may seem at first blush.
In fact, the FASB (1993) explicitly stated in explaining its rule-making...
that extremely remote “disaster scenarios” (such as a run on a bank or an insurance company) would not be anticipated by an enterprise in deciding whether it had the positive intent and ability to hold a debt security to maturity.
The managers (evidenced by pursuing more capital) and the market (in reaction to that) obviously started to consider that possibility as much less remote, which became a self-fulfilling prophecy. But “disaster valuation” might not be a great default way to account when your business is generally conducted under non-disaster conditions.
I strongly agree and wanted to share a similar sentiment.
It is not as simple as “the market says the asset or liability is worth X, so you should too.” Businesses are usually going-concerns and it is not really that useful for the company to report itself as merely how things would go down if they were to liquidate today (though obviously considering that possibility is useful, especially if your business could be “runny,” and recording the fair value of HTM securities in a note to the financial statements allows readers, like Raging Capital Ventures, to contemplate that). Those liquidation values continue to require subjectivity (e.g., depends on the spreads for the assets and what if the blowup situation we’re talking about would spark fear and government intervention that would actually support the assets’ values?! [which is exactly what happened with SVB’s assets actually]), and of course are not even perfectly reflected by MTM values, so their utility is not as straightforward as it may seem at first blush.
In fact, the FASB (1993) explicitly stated in explaining its rule-making...
The managers (evidenced by pursuing more capital) and the market (in reaction to that) obviously started to consider that possibility as much less remote, which became a self-fulfilling prophecy. But “disaster valuation” might not be a great default way to account when your business is generally conducted under non-disaster conditions.