【正文】 so possible that extant rules and guidance are too restrictive (even from a secondbest perspective) and that we would have been better off giving managers more flexibility in the is in essence the view that the House Financial Services Committee adopted in a hearing on MTM accounting rules on March 12, 2020. As a result of this political pressure, the FASB relaxed the conditions for moving assets into Level 3 in April 2020. Moreover, the financial statements of . banks for fiscal 2020 show that banks have been able to move assets into the Level 3 Category as the financial crisis unfolded, so it was clearly not impossible to move to models (see also IMF, 2020). But it is of course possible that banks did not move enough assets into the Level 3 category to prevent contagion effects. In the end, we need more research on this A second implementation problem may arise from litigation risk. Deviations from market prices under existing FVA standards require substantial judgement by the preparers and the auditors. However, managers, directors and auditors face severe litigation risks as well as substantial legal penalties, including prison terms, which recently have been increased by the SarbanesOxley Act of 2020. In this environment, managers, directors, and auditors are likely to weigh the personal costs and risks associated with deviations from market prices differently than investors. For example, it is conceivable that a manager is reluctant to use an appropriate model based fair value that is higher than an observable price from a very illiquid market, especially when there is substantial downside risk for the economy or the firm, as there typically is in financial crises. From a litigation risk perspective, guidance as to when deviations are appropriate is likely to play an important role, especially in litigious environments and when enforcement is strong. Thus, it is possible that, once we recognize the litigation aspect, improvements in the standards’ implementation were (and perhaps are still) needed. However, as litigation serves as an important enforcement mechanism, there are tradeoffs as we highlighted earlier in this section for SEC enforcement. This second implementation problem also highlights that it is important to evaluate accounting standards within the context of the institutional environment in which they Conclusion and suggestions for future research The preceding sections illustrate that the debate about FVA is full of arguments that do not hold up to further scrutiny and need more economic analysis. Moreover, it is important to recognize that standard setters face tradeoffs, and in this regard FVA is no exception. One example is the tradeoff between relevance and reliability, which is at the heart of the debate of when to deviate from market prices in determining fair values. Another example is that FVA recognizes losses early thereby forcing banks to take appropriate measures early and making it more difficult to hide potential problems that only grow larger and would make crises more severe. But this benefit gives rise to another set of tradeoffs. First, FVA introduces volatility in the financial statement in “normal times” (when prompt action is not needed). Second, full FVA can give rise to contagion effects in times of crisis, which need to be addressed – be it in the accounting system or with prudential regulation. In our view, it may be better to design prudential regulation that accepts FVA as a starting point but sets explicit countercyclical capital requirements than to implicitly address the issue of financial stability in the accounting system by using historical costs. It is an illusion to believe that ignoring market prices or current information provides a foundation for a more solid banking system. But we admit that the tradeoff between transparency and financial stability as well as the interactions between accounting and prudential regulation needs further analysis (see also Landsman, 2020). A related issue is the question of how investors respond to additional disclosures that firms provide in times of crisis. There are a few studies that examine firms’ responses to transparency crises and their economic consequences (., Leuz and Schrand, 2020). The current crisis provides an interesting setting to further explore these issues further. An analysis of European banks’ annual reports by KPMG (2020) suggests that, in 2020, banks increased their disclosures related to financial instruments, in part due to the beginning of the crisis. It would be interesting to study what determines disclosure (or nondisclosure), how investors reacted to these disclosures and whether there are signs that investors overreact to such disclosures. Finally, it is important to recognize that accounting rules and changes in them are shaped by political processes (like any other regulation). The role of the political forces further plicates the analysis. For instance, it is possible that changing the accounting rules in a crisis as a result of political pressures leads to worse outes than sticking to a particular regime (., Brunnermeier etal., 2020). In this regard, the intense lobbying and political interference with the standard setting process during the current crisis provide a fertile ground for further study. In sum, the fairvalue debate is far from over and much remains to be done. References Adrian, T., amp。 IMF, 2020). The chief concern is that FVA is procyclical, ., it exacerbates swings in the financial system, and that it may even cause a downward spiral in financial markets. . GAAP and, more recently, also IFRS allow for a reclassification of fairvalue assets into a category to which HCA and less stringent impairment tests apply. . GAAP and IFRS have mechanisms to avoid negative spillovers in distressed markets an