Derivatives Guidance You Can Count On

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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.

June 27, 2017

Upcoming FASB Hedge Accounting Changes Summarized

The Financial Accounting Standards Board’s (FASB) derivative and hedging rule changes are now expected to be out in final form in August 2017 according to a news release earlier this month.   The FASB noted that feedback on the coming changes has been overwhelmingly positive and well received. 

Generally, the new standard was designed to better align the accounting rules with a company’s risk management activities, better reflect the economic results of hedging in the financial statements and to simplify compliance with the hedge accounting rules. 

February 14, 2017

Time-Limited No-Action Relief Issued for Variation Margin Rule

The CFTC issued limited no-action relief yesterday in response to industry requests to push out the date for compliance with the variation margin requirements (CFTC Regulation 23.153), providing swap dealers more time to put the necessary infrastructure in place.  The no-action relief is time limited and only applicable under certain conditions.

January 18, 2017

A Primer on Risk Participation Agreements

Risk Participation Agreements offer financial institutions opportunities to better align target risk/reward profiles

Risk Participation Agreements (RPAs) are off-balance sheet transactions in which one bank, the agent, sells part of its exposure to a contingent obligation to another bank, the participant, for a fee. The obligation is typically in the form of an interest rate swap or other derivative contract with a commercial client. The agent bank thus reduces its commercial client credit exposure, while the participant bank creates additional fee revenue in exchange for accepting some contingent credit risk.

This document is intended to provide bank officers and relationship managers at regional and community banks with a high-level description of the mechanics of RPAs, so that they can better understand how they work, and how they can be used to either mitigate contingent counterparty credit risk or to create non-interest fee income opportunities.

Throughout the paper, a concrete example of a typical, real-world set of transactions is utilized to illustrate the concepts presented, and to demonstrate how Derivative Path’s DerivativeEDGE platform can help banks drive and manage new business opportunities through the use of derivative products.


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