ABA Calls for Flexibility from FASB as Libor Transition Commences

With the New York Federal Reserve beginning to publish the Secured Overnight Financing Rate — or SOFR — next week, the American Bankers Association today wrote to the Financial Accounting Standards Board in support of including the overnight index swap rate based on SOFR as a benchmark interest rate for hedge accounting purposes, as an alternative to U.S. dollar Libor.

ABA called for flexibility from FASB as banks begin the transition away from using Libor, noting that it will involve changing not just derivative contracts, but also contracts related to cash products — such as loans and securities — that are hedged. The association pointed out that setting a specific date for transition would likely be unfeasible, as cash product contracts are often less standardized, and urged FASB to consider provisions that allow for flexibility regarding the accounting implications relative to contract amendments and new contracts referencing the new rate on a contract-by-contract basis.

A recent article in the ABA Banking Journal provides an overview of what banks can expect as the Libor transition takes place, and discusses transition issues facing the industry. For more information, contact ABA’s Josh Stein.