【正文】 when losses are realized. It is surprising that some mentators seem to believe that HCA is a sound basis for capital requirements or that the liquidity of an asset should play no role when market values and liquidity play an important role in determining (ongoing) margin or collateral requirements.5 Aside from highlighting some of the shortings of HCA, these examples also illustrate that it is important to be explicit about the presumed goal(s) of accounting when we debate the merits of FVA and other alternatives, such as HCA, because their relative merits likely depend on the goal(s) of accounting. Furthermore, take the concern that observed prices may not always reflect true fundamental values and that in those cases markingtomarket is not appropriate. Clearly, it is conceivable that, at times, observed market prices deviate from fundamentals. That is, markets may not be efficient with respect to publicly available information at all times. There are transaction costs and limits to arbitrage, and market prices may be subject to behavioral biases and investor irrationality (., Shleifer, 2020。ve。 Plantin et al., 2020b).9 In contrast, HCA prohibits asset writeups in booms and creates “hidden” reserves, which can be drawn upon in times of crisis. However, this argument ignores that FVA provides early warning signals for an impending crisis and hence may force banks to take appropriate measures earlier.10 Thereby, FVA may actually reduce the severity of a crisis. Moreover, a key question is why a bank would hold these hidden reserves under HCA and essentially choose a lower leverage (or why it would not be willing to hold higher reserves if they are not hidden under FVA). One possibility is that a bank’s leverage is driven by its book equity rather than the market value of equity because of regulatory capital requirement. HCA and a fixed regulatory capital ratio based on book values indirectly result in dynamic prudential regulation where banks have a lower leverage ratio (measured in terms of market values) in booms when fair values exceed historical costs than in recessions. However, it is important to recognize that a bank can also increase its leverage in boom periods under HCA by selling an asset and retaining only a small claim in it (or guaranteeing its performance), as banks did when they securitized loans. Thus, we do not think that the tendency of banks to expand 8 It is important to recognize that procyclicality of FVA is more than simply reporting cycles in asset prices. That is, the expression makes only sense if we have in mind that the accounting system exacerbates the cycles in the financial system or the real economy. See Barth (2020) for a discussion of how FVA can contribute to the volatility of the accounting numbers. 9 Adrian and Shin (2020) provide evidence on a positive relation between changes in asset values and changes in leverage ratios for major (former) . investment banks. 10 The . Samp。 Schulz and Hollister, 2020). Moreover, securitizations of loans, which were accounted for at amortized costs and traditionally held to maturity, could be driven by banks’ desire to realize accounting earnings early. Prior to the crisis, the market for securitized loans was reasonably liquid and gave banks an opportunity to recognize substantial gains from loan origination. Thus, those who criticize FVA and call for a return to HCA have to be careful: HCA for loans coupled with banks’ shortterm incentives may in fact have been an important factor in the recent surge of securitizations. This example again illustrates our broader point in Section 3 that even if there are potential problems with FVA such as contagion effects, it is not clear that HCA is the solution to these problems. An alternative way to tackle the procyclicality of the accounting system is to deviate from market prices in situations when contagion is likely to occur. Both . GAAP and IFRS allow such deviations in certain circumstances. First, the standards explicitly state that market prices from forced sales should not be used, which protects against negative spillovers from distressed banks. Second, the standards allow the use of valuation models to derive fair values when markets bee inactive, which should also mitigate contagion effects in a financial crisis. Third, . GAAP and, more recently, also IFRS allow for a reclassification of fairvalue assets 11 Note that this is only true if these prices are not also relevant for (other than temporary) impairment testing. If they are, the same effects occur under HCA with impairments. However, the distinction between temporary and otherthantemporary impairments generally makes HCA less sensitive in practice. 12into a category to which HCA and less stringent impairment tests apply. Thus, . GAAP and IFRS have mechanisms to avoid negative spillovers in distressed markets and a downward spiral.12 Yet another way to address contagion and procyclicality is not to have direct (mechanical) regulatory or contractual ties to FVA. For instance, it would be possible to adjust the accounting numbers for the purpose of determining regulatory capital. Such adjustments already exist. For example, for the purpose of calculating regulatory capital, the Federal Deposit Insurance Corporation and the Federal Reserve adjust bank’s equity as reported under . GAAP for unrealized losses and gains for availableforsale (AFS) debt securities to obtain Tier 1 capital (., Schedule HCR in FR Y9C). Thus, regulatory capital as calculated by . banking regulators is not affected by changes in the fair value of AFS debt securities, unless they are sold or the impairments are otherthantemporary.13 Similarl