Eri Panoti details how the FASB's recent rule proposal would benefit financial institutions
Summary
Eri Panoti spoke to Bloomberg Tax about how the FASB's new rule proposal could make financial institutions' interest rate risk management easier by expanding common accounting techniques that qualify for hedge accounting.
Bloomberg Tax“It gives flexibility to institutions to make the decision on when they execute their transactions based on their risk management assessments and less on the accounting,” Panoti said.
Making the accounting easier means banks can focus on managing their risks instead of worrying about making bookkeeping mistakes, said Eri Panoti, accounting advisory director at Chatham Financial.
“It gives flexibility to institutions to make the decision on when they execute their transactions based on their risk management assessments and less on the accounting,” Panoti said.
Businesses manage, or “hedge” their exposure to changes in raw material prices, foreign currency rates, and interest rates by buying derivatives such as futures, options, and swaps. Banks manage the risk of rising or falling interest rates on customer mortgages by setting up interest rate swaps.
U.S. accounting rules, outlined in ASC 815, require all derivatives like forwards and swaps to be accounted for at fair value. The fair value of derivatives, by their nature, can fluctuate wildly. Certain types of derivatives can quality for hedge accounting to minimize those swings.
Interest rate risk management
Chatham’s holistic and transparent approach to interest rate risk management helps you consider all facets of a hedging solution. Through the support of our resources and extensive experience, you can optimize your balance sheet while offering versatile fixed-rate loan solutions.
Our Balance Sheet Risk Management team assists in creating customizable strategies to help you manage specific asset and liability exposure to potential interest rate movements. We provide a full-service solution which encompasses structuring guidance, trade execution, accounting and regulatory support, and life of trade servicing.
We will also help you identify the best option in offering long-term, fixed-rate loan solutions to your borrowers. Chatham provides the flexibility to hedge individual loans or offer a back-to-back swap program that can handle any deal volume, from a single transaction to thousands of trades. Our support includes the full life cycle of a loan-level hedging transaction.
With alumni from Big Four accounting firms and the FASB, our team of specialist hedge accountants provides comprehensive hedge accounting support. Chatham also has a regulatory advisory team to help negotiate ISDA agreements, address Dodd-Frank requirements, and prepare you to meet other regulatory requirements. These highly experienced professionals minimize pricing and maximize transparency, offering insights into market trends that keep you informed today and give you the power to prepare for what’s next.
