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Level 2 assets under FASB 157 are valued using the concept of "marking to matrix." This approach is essential for assets that do not have a market price readily available but can be valued based on observable inputs or similar assets. In this context, "marking to matrix" involves utilizing pricing models that incorporate observable market data, such as quoted prices for similar assets or liabilities, rather than relying solely on the market price of the assets themselves.

The rationale behind this method is that it provides a more accurate reflection of fair value for assets that are not actively traded, preserving the integrity of the financial reporting process. By utilizing a matrix of observable inputs, companies can estimate a fair value that aligns with current market conditions and expectations, aiding stakeholders in making informed decisions.

This specific classification is crucial for understanding how different levels of assets are appraised and how this impacts financial statements and overall market transparency.