Derivatives Guidance You Can Count On

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October 1, 2019

Cash Flow Hedging Strategies Simplified by the New Hedge Accounting Rules

Long term interest rates falling again along with the inverted yield curve present an opportunity for financial institutions to hedge floating rate liabilities on their balance sheet. Hedging against rising rates on floating rate debt has become a simpler strategy to pursue under the simplified hedge accounting rules. Under the new rules, qualifying cash flow relationships with some basis difference no longer produce income statement volatility and allows financial institutions to focus on the economics of a hedging strategy.

August 23, 2019

What Happens to Hedge Accounting When an Entity is Acquired in a Purchased Business Combination

When an entity is acquired in a purchased business combination, that entity ceases to exist and the acquiring entity survives.  We provide a summary below of what happens to both existing fair value and cash flow hedges of the acquired entity under ASC 815 and a framework for a path forward for the acquiring entity.

March 6, 2019

LIBOR/SOFR Transition - not SO FaR away

On March 5th, 2019, Derivative Path's Head of Sales and Structuring, Chris Slusher addressed the key differences between LIBOR and SOFR. Melanie Wheeler, General Counsel & Chief Compliance Officer at Derivative Path Inc., discussed the legal and compliance impact of the LIBOR transition on a financial institution’s interest rate management operations. Derivative Path's Head of Hedge Accounting, Rob Baer described the impact of the transition on hedge accounting for firms hedging interest rate risk.

December 5, 2018

Portfolio Hedging Under the FASB’s New Last of Layer Approach

Converting fixed rate assets to floating in a rising interest rate environment can be a proactive balance sheet risk management strategy for liability-sensitive financial institutions.  The new hedge accounting rules, ASU 2017-12 Derivatives and Hedging, published in August 2017 expand the range of accounting-friendly hedging strategies to accomplish this goal, but most dramatically under the new Last of Layer portfolio hedging approach.  In this piece, we provide a summary of how to construct a portfolio hedge using the Last of Layer approach.

September 25, 2018

Update on New Hedge Accounting Rules under ASU 2017-12

The hedge accounting rules were materially simplified by the Financial Accounting Standards Board when they published ASU 2017-12 in August 2017.   Many companies have early-adopted these new rules before the mandatory effective date of 2019 to take advantage of the new provisions.  Given the significant changes promulgated last year, it is not surprising that several issues requiring additional FASB guidance have surfaced.  In the FASB’s September 5, 2018 meeting, several of these issues were clarified and some deferred for future clarification.

May 25, 2018

A New Game in Town: SOFR to Replace LIBOR

On May 23, 2018, Derivative Path, Inc's. General Counsel & CCO Melanie Wheeler, along with Michael Best and Friedrich Partner Alexander P. Fraser, and Senior Counsel Cheryl Isaac Aaron presented a very timely discussion on LIBOR replacement. They shared a lot of information that is pertinent to banks engaged in back-to-back derivatives as well as those who use LIBOR to do any type of lending.

October 23, 2017

Has There Been any Progress on Derivative Reform with the New Administration?

Late last year, Derivative Path sent out a Compliance Update with some thoughts on what could take place in 2017.  As the year wraps up and we start looking forward to 2018, it is a good time to assess what progress, has been made and what potential changes are anticipated going forward.

October 13, 2017

The Impact of the New Hedge Accounting Rules

The Financial Accounting Standards Board (FASB) issued their Derivatives and Hedging Update on August 28, 2017.  The new rules will simplify compliance, allow more hedging strategies to qualify and will more closely align the fair value measurements of a hedge with the underlying exposure. Robert Baer, Derivative Path's Head of Derivative Accounting lead a panel discussion on how the new hedge accounting provisions will impact a financial institution’s interest rate risk management policies and compliance processes. You can review the presentation here.

September 13, 2017

FASB Finalizes Derivatives and Hedging Update

As expected, the Financial Accounting Standards Board (the FASB) issued their Derivatives and Hedging Update on August 28, 2017. The new rules simplify derivative accounting compliance, allow more hedging strategies to qualify for hedge accounting treatment, and more closely align the fair value measurements of a hedge with the underlying exposure. We present our thoughts on the final rules.

July 24, 2017

To Early Adopt or not to Early Adopt

The Financial Accounting Standards Board (the FASB) is expected to issue a final Derivatives and Hedging Update by the end of this quarter (Aug/Sept, 2017).  In this research piece, we discuss our thinking behind pros and cons of early adoption of new rules and the steps to complete if an institution decides to early adopt.  We also discuss an important change under a new "last of layer" method that will make it easier for financial institutions to hedge a portfolio of pre-payable assets such as MBS and ABS.


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