Abstract
& co. r many bank portfolio managers, the events of the past year and a half have dictated a hndamental change in investment strategy. Up to now, the F greatest impact has come from a Securities and Exchange Commission (SEC) mandate to move large portions of banks’ investment securities from historical cost ac counting to lowerofc os t o r-mar ke t (LOCOM) accounting. But even as portfolio managers are adapting their strategies to the LOCOM environment, a broader transformation is looming on the horizon. The recent Financial Accounting Standards Board (FASB) decision to implement market value accounting next year for a portion of bank securities portfolios heralds a completely new era in bank portfolio management. We believe that in this new era bank portfolio managers will be motivated to increase the amount of securities designated as available for sale, lengthen portfolio duration, employ various hedging techniques more actively, and expand the use of off-balance-sheet instruments.
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