ABA Urges Expansion, Simplification on FASB Hedge Accounting Proposal

In a comment letter to the Financial Accounting Standards Board, the American Bankers Association recommended several changes to a proposal that could significantly expand when hedge accounting can be used by banks to mitigate reported profits and losses. In supporting FASB’s efforts to allow “portfolio layers” of prepayable assets to be hedged, ABA encouraged future efforts to expand such treatment to prepayable liabilities and non-prepayable assets.

The association also recommended that FASB eliminate the proposed “follow the asset approach” when hedged portfolio layers are “breached,” leaving certain derivative instruments with no assets to hedge. In these rare occasions, the proposal would require costly system enhancements to perform detailed transactional review when classifying the income statement impacts that are likely to be insignificant.