Fed Gary Stern Supports Mark-To-Market System

Federal Reserve Bank of Minneapolis President Gary Stern said Tuesday he strongly supports the system of mark-to-market accounting, although he recognizes that valuation of assets poses a challenge in times like these.

Mark-to-market “may not be perfect, but it is better than any alternative that I have observed,” Stern said in response to questions following a speech to the Brookings Institution.

Separately, Stern said that if mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) were starting with a clean state, it might make sense to give them a narrow mandate of supporting homeownership for lower- and middle-income households, thus shrinking their size.

However, given how those institutions have evolved, “I don’t know how you get where we are now to that,” Stern said. [via Dow Jones]

On the too-big-to-fail concerns Stern said:

“As matters stand today, the risk-taking of large, complex financial institutions is not constrained effectively by supervision and regulation nor by the marketplace. If this situation goes uncorrected, the result will almost surely be inefficient marshaling and allocation of financial resources, serious episodes of financial instability, and lower standards of living than otherwise.”

Stern’s speech available here.

Speaking at the same Brookings event, Alan Greenspan questioned the feasibility of creating a regulator in charge of systemic risk in the financial markets, saying that while regulators can spot times when risk is underpriced, they cannot forecast future crises.

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