Final answer:
Assets are not recorded at current market values due to the historical cost principle which prioritizes the original cost of assets for consistency and comparability in financial records. Banks specifically deal with complex valuations of their loans and other financial instruments, making the historical cost a practical approach amidst these intricacies.
Step-by-step explanation:
Most assets are not recorded at their current market values because of limitations imposed by the historical cost principle. This accounting principle mandates that asset valuation should be based on the original cost at the time of purchase, rather than on the fluctuating market value. This approach helps provide a consistent and stable basis for financial records, ensuring comparability over time. Additionally, the historical cost method often avoids the subjective estimates of value that can vary with market conditions.
Within the context of bank supervision, this principle can be particularly relevant. Banks, through their loans and other complex financial instruments, face the challenge of evaluating the risk of non-repayment by customers. These valuations are not straightforward and are influenced by various factors, including customer creditworthiness, the economic environment, and political issues. Thus, the historical cost principle serves as a simplifying convention in the face of such complexities.