Question

Market-value accounting has several advantages over historical-cost accounting for banking regulation such as ____

A) Giving regulators the ability to close a bank before its net worth falls to zero

B) Making it more difficult for bank officials to hide insolvencies

C) Reducing the incidence of taking excessive risks in hopes of staying in operation

D) All of the above

Answer 1

Market value accounting has several advantages as it serves as an effective monitoring mechanism for different stakeholders concerned. From a regulators point of view, the inefficiencies would be exposed automatically and the regulatoes would be able to close before its net of assets and liabilities (networth) falls to zero. This makes it more difficult for the bank officials to hide the insolvenices and thus reduces the excessive risk taking nature in the hopes of staying in operation.

Answer is D) All of the above