> As a former trading desk guy I struggle to see how the system allows things to be marked-to-cost. Or rather, why is it that we allow a bank to not mark-to-market a security for which there is a liquid market?
Many of their assets aren't really fungible either. Mortgages are the canonical example: yes they can now be turned into MBS, but your local credit union just issues and holds them). The same is true of the commercial loan to the local stationary business. As far as I know those aren't bundleable into commercial paper securities. The debtors do the same: they don't treat their loan as having any market value at all beyond what it had when issued. House prices generally don't mark to market except in places with property tax assessment.
> your local credit union just issues and holds them [mortgages]
I was on BoD of a CU. About the only thing we didn't resell were loans which did not conform. The business was to originate, quickly resell, and do some more.
Many of their assets aren't really fungible either. Mortgages are the canonical example: yes they can now be turned into MBS, but your local credit union just issues and holds them). The same is true of the commercial loan to the local stationary business. As far as I know those aren't bundleable into commercial paper securities. The debtors do the same: they don't treat their loan as having any market value at all beyond what it had when issued. House prices generally don't mark to market except in places with property tax assessment.