As a result, there could be accounting volatility that bears little relation to an institution’s overall risk position. Supervisors and analysts will have to strip out the artificially created volatility to assess the true performance of the firm.
On the other hand, companies that do not manage their risks, or manage their risks solely through cash instruments that are not covered by the standard, would not reflect similar volatility. A simple example might illustrate this concern. Assume a company’s activities consist solely of lending long term at fixed rates and funding these loans with variable-rate deposits.