Mark to Market (MTM) is an accounting method meant to price an asset by its most recent market price.
An example would be mutual funds, whose “NAV” price is a mark to market price of how much the mutual fund closed for at the end of a trading session. The mark to market accounting method has some pros and cons. On the pro side, if an asset is very liquid, then MTM will provide an accurate reflection of its current value.
But if an asset is illiquid, the mark to market may not actually reflect the asset’s true value. This was apparent during the 2008 financial crisis, when the mark to market rule in November 2007 (FAS 157) forced banks to mark to market their portfolios of mortgage backed securities.
Since those securities endured a period where they were practically unsellable, the MTM rule made their value drop precipitously almost overnight - also shrinking bank balance sheets with it - even though many of those securities still had longer term value.