To this end, safeguards should be implemented to eliminate a firm's ability to overstate gains or understate losses by switching back and forth between business models or by reclassifying assets from one business segment to another. For example, from a regulatory perspective, assets in a financial institution's liquidity reserve, by their nature, imply utility through sale and, therefore, should be valued at market price.
That kind of flexibility will be essential with the emergence of smaller financial holding companies and the expanded range of permissible activities. Clearly, these two broad supervisory programs will need further customization or segmentation to respond to the evolving diversity of our supervisory caseload. Another area where supervisors are attempting to more appropriately align risks with regulatory approaches is capital.