Summary
Mark To Market(MTM) basis for valuation of INVESTMENTS made by BANKS shall distort Balance Sheets and published accounts of the Banks, and may Strangulate Economic Growth, particularly in periods when GOWTH is needed. Financial Institutions\Investment Banks\Pension Funds and BANKS make longterm investments in shares/stocks/govt. securities for long term growth benefits. Requiring them by law to value these investments at MTM principles regularly at weekly/ monthly/quarterly/yearly intervals is just like calling upon their managements to become market participants like speculators/hedge funds/derivative operators or BROKERS in CDS. BANKS are trustees of PUBLIC DEPOSITS. This is the perception of the PUBLIC . Unfortunately some banks mixed up the domain of their operations because of poor regulation or deliberate oversight by the REGULATOS.The need of the hour is Strict Surveillance, not making rules that kill the GOOSE that laid the GOLDEN EGGS that is-BANKS, Institutions of Growth
Analysis
In case MTM is insisted by LAW for LONG TERM INVESTMENTS, In periods of recession, low valuations of the market on account of poor perception of the economy,and hence poor or negative bottom-line would baselessly wipe-out the faith of the PUBLIC in banks and cosequently in the Economy of the Country/World . Similarly in periods of BOOM it could result in baseless exuberance, like 2007.
We must not make BANKS/LONG TERM INVESTMENT INSTITUTIONS as Institutions of Speculative Investments and the need of the hour is 100% Proof surveillance and proper regulation by the regulators.
Published accounts based on valuation of long term investlments on the MTM principle periodically say weekly/monthly/quarterly/six monthly/yearly would distort the bottom line of all Institutions/Corporations/Banks/Pension/Life Funds. It would not truely represent their performance on month to month or even on quarterly basis. It would infact fluctuate or let me say dance to the tune of the stock market performance. This would have dangerous cosequences, not only for the growth of a regulated society but also to retain and motivate experienced talent working for an entity.
INVESTMENT institutions need to be allowed to value investments at cost or fair value(Three year average market price) in their balance sheets. However on an annual basis an indication of the market value of the investments may be given in the NOTES to the Balance Sheet, giving true and fair view of the affairs of the Bank/Institution to the stake holders/shareholders.
