A proposed accounting standards update on derivatives and hedging would remove unnecessary constraints on the latter, thereby better aligning financial reporting with institutions’ risk management activities, the American Bankers Association said today in a letter to the Financial Accounting Standards Board.
The proposed update would make targeted improvements to hedge accounting to allow hedging interest rate risk for held-to-maturity debt securities, broaden the Secured Overnight Financing Rate (SOFR) benchmark rate and expand the population of eligible net investment hedging instruments. ABA said it strongly supports the update, which “appropriately focuses on discrete issues that can be addressed without reopening the broader hedge accounting model.”
“The proposed amendments would help remove accounting constraints that may discourage economically sound risk management strategies, particularly for institutions that manage interest rate risk in securities portfolios, use SOFR-based instruments to hedge benchmark interest rate exposure or use cross-currency swaps to manage foreign currency risk associated with net investments in foreign operations,” ABA said.
