As the derivatives market works to transition away from the London Interbank Offered rate, the American Bankers Association this week wrote to the Financial Accounting Standards Board in support of a deferral of the sunset date for the transition relief provided by FASB and the expansion of the definition of the Secured Overnight Financing Rate, or SOFR, to include term SOFR as eligible to be designated a benchmark index for hedge accounting purposes.
ABA also expressed support for FASB’s continued work toward the development of a principle for interest rates eligible for fair value hedge accounting. As FASB moves ahead with its fair value hedging project in light of the reference rate transition, ABA urged it to consider including the Bloomberg Short-Term Bank Yield Index, or BSBY, as a U.S. benchmark interest rate. “This will allow fair value hedge accounting to be applied to a fixed rate loan hedged by a receive BSBY/pay fixed interest rate swap to align the accounting with risk management practices,” ABA said.
