Controversy has raged over the adoption of the Statement of Financial Accounting Standards Number 115 (SFAS 115), which requires fair value accounting for investment securities. Bankers and regulators have argued that this accounting standard will lead to unrealistic volatility in bank equity. Bankers have claimed that this change in the accounting method would cause them to alter their investment portfolio management to mitigate that increase in volatility. Studying the impact of this change on bank holding companies’ management of their investment portfolios, Anne Beatty finds that including the effects of SFAS 115 on regulatory capital could have important consequences for both the banking industry and the economy.