Why is financial instruments accounting so controversial?

When the SEC and the G-20 commission reports on the role of accounting(!) in the global financial crisis(2008-?), it points to something serious.

The Netherlands financial regulator Hans Hoogervorst(in his speech here) had some interesting insights on this. He says that that it is hard to imagine a riskier business model than the current banking industry where sides of the balance sheet are volatility prone. Assets are cyclical while liability funding can dry up quickly. He further declaims the low capital margins(2% or less tangible common equity pre crisis) and implicit subsidies(sovereign guarantee, access to low cost funding via Central banks etc).

In this scenario, he states that prudential regulators are bound to strict confidentiality rules and prefer closed door solutions(like how Volcker solved the Latam crisis by cloaking the solvency issue of US banks). Whereas IFRS standard setters/auditors  prefer to seek for transparency.

So in my view, accounting for financial instruments is so controversial because:-

1. Mark to Market(MTM) values are inherently pro-cyclical:-Though regulators do impose capital buffers(to allow for erosion of asset value; and Basel III proposes counter cyclical buffers), the fact remains that when asset values are high, everyone is happy(who ever complained of 'too high prices'?) but when accounting reflects the illiquid/fire sale prices, then people begin to grumble or lobby for suspending the reversal of those paper profits which they accounted for earlier
2. MTM accounting hits banks when they are weak:- Post crisis, banks typically need more capital. MTM accounting increases the regulatory capital requirements and investor risk perception. 
3. Domino effect/financial stability concerns make regulators act:- While booking losses may be technically correct/fair, regulators fear contigion spreading across the system and prefer to act to prevent this. In that case, the MTM accounting may get short shrift if it buys regulators more time
4. Importance of regulatory framework:- In other industries, regulators do not have the all pervasive effect they have in banking where they can affect both assets and liabilities. So the regulatory objectives can prevail over those of IFRS