In spite of its painful consequences, banks’ marking-to-market has an ineluctable logic to it, writes John Dizard, in Monday’s FTfm.
But the next round of writedowns will be anything but swift and clear. Not least because banks have yet to embrace proper, cathartic losses. While banks’ “trader-fundamentalists” see asset value only ever as what the bid side says it is, those in charge, are still seeing shades of grey. Risk managers and board members are loath to follow through on marked-to-market fundamentalism.
The way out of the fix, is recapitalisation. Banks which can raise new capital swiftly won’t have to worry about marking to market.
The first stage was that series of calls on the sovereign wealth funds in recent months. Unfortunately, the limit on that source of equity has probably been reached, both for the banks and the SWFs. Most of the new equity for the banks and dealers will have to come from their home markets.