To address these concerns, the Basel Committee recommended certain restrictions on the fair value option, such as disallowing the marking to market of credit risk of the institution’s own outstanding debt and prohibiting the fair value option for illiquid financial instruments.
It also suggested that the fair value option be limited to transactions that seek to economically hedge risk exposures and to situations in which accounting volatility associated with the mixed-attribute model can be reduced. Lastly, it recommended enhanced disclosures related to the fair value option.