Journal of Economic Perspectives: Vol. 24 No. 1 (Winter 2010)


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Did Fair-Value Accounting Contribute to the Financial Crisis?

Article Citation

Laux, Christian, and Christian Leuz. 2010. "Did Fair-Value Accounting Contribute to the Financial Crisis?" Journal of Economic Perspectives, 24(1): 93-118.

DOI: 10.1257/jep.24.1.93


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, we assess these arguments and examine the role of fair-value accounting in the financial crisis using descriptive data and empirical evidence. Based on our 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, we find little evidence that these effects are the result of fair-value accounting. We also find little support for claims that fair-value accounting leads to excessive write-downs of banks' assets. If anything, empirical evidence to date points in the opposite direction, that is, toward the overvaluation of bank assets during the crisis.

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Laux, Christian (Vienna U Economics and Business)
Leuz, Christian (U Chicago)

JEL Classifications

G01: Financial Crises
G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G28: Financial Institutions and Services: Government Policy and Regulation
M41: Accounting
M48: Accounting and Auditing: Government Policy and Regulation


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