Banks are required to mark-to-market the investments in the Held for Trading (HFT) and Available for Sale (AFS) categories at periodical intervals, on a portfolio basis, and provide for the net losses and ignore the net gains.
This has proved to be a stabilising factor, inasmuch as it has not induced an imbalance in the incentive structures and has also proved to be less pro-cyclical. Moral suasion and supervisory review Moral suasion and public articulation of concerns has helped in achieving a desired rebalancing of suspected excesses in risk-taking among banks.