Overall, the procyclical spiralling down of asset values stems from the implementation of the so called fair value accounting methodology. As we know, in distressed times, the mark to market valuation is even worse for illiquid and/or senior asset classes with long maturities.
The recent experience shows that this is typically the case for most of the assets hold by financial intermediaries, banks and insurers. The impact on banks’ net worth has henceforth been more noticeable. This is due to falling mark to market investment values rather than to impaired credit quality or defaults.