Elsewhere, it followed adoption of the IASC’s International Accounting Standard 39 (IAS 39) in January 2001. The banking crisis of the past two years has brought that evolution to a halt. As pressures on banks’ balance sheets have intensified, subdued lending growth has raised concerns that recovery may be retarded. A debate has begun internationally on rolling back fair value to arrest this downward trajectory. Once again, central bank governors, politicians, regulators and countries have been prominent in their criticism of fair value. Some fear that fair value is poised to enter the third dip on its rollercoaster journey. Fair values and market prices What have been the underlying forces leading fair value to be at first lauded, then questioned and periodically abandoned? At the heart of this is the vexed question of whether market prices are a true and fair assessment of value. In theory, market prices ought to be a full and fair reflection of the present value of future cashflows on an asset. This is the fulcrum of the Efficient Markets Hypothesis (EMH). Market prices, if not perfect, are at least efficient aggregators of information – a one-stop shop for appraising value. This simplicity makes EMH powerful theory. But its real power is its widespread application in practice. EMH has not just monopolised the finance textbooks; it has also dominated the dealing rooms. If the EMH were to hold strictly, the fair value debate would be uncontentious. Marking of assets to market would be proper recognition of their economic value.

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