Panacea, Pandora's box, or placebo: Feedback in bank mortgage-backed security holdings and fair value accounting

► We examine the relation between bank holdings of mortgage-backed securities (MBS) and MBS prices. ► We document a positive association-feedback effect. ► This relation is stronger for banks with high MBS, more nonperforming loans, and lower total capital ratio. ► This relation is reduced after the April 2009 mark-to-market rule clarification. ► Results suggest feedback related to mark-to-market accounting had a measurable effect on shareholder.