This study examines whether financial institutions change their investments in equity securities when they can no longer recognize the gains and losses in net income. We explore the portfolio adjustments around IFRS 9 adoption. The standard eliminated the reclassification of gains and losses recognized in other comprehensive income to net income upon their realization, which led to a controversial debate in standard setting. We document that banks reduce their equity holdings upon IFRS 9 adoption. Security-level data of banks’ equity holdings shows that the sales involve a significant share of long-term investments, investments with a high ESG score, and instruments with a low dividend yield as dividends continue to be recognized in net income. An increasing fraction of private equity and asset management firms is among the acquirers of these securities. Collectively, the evidence suggests that the incentives set by the new requirements to account for equity investments are not neutral with respect to investment decisions.