KungFuPanda

When you have an AFS security

Balance sheet adjusts to Fair Value at the end of the period.
But the unrealized gains/losses flows thro' the OCI (Equity portion).

So if you used NI/Equity = ROE to do stuff with relation to the RI Model -> Net Income is actually not correct, since the unrealized gain/loss for the AFS security did not pass thro' the Income statement.

Common equity is fine - since OCI is part of common equity.
So ROE is actually mistated.
If you thought of an AFS security that had a loss -> Common Equity went down, no change in Net Income - so ROE is higher.
But if it had been a HFT security - NI would have gone down, Common Equity would have been the same, ROE would thus have been lower.

Compare the above treatment to what happens if it were a HFT security.

CP