Thomson Reuters Tax & Accounting speaks to Eri Panoti on Topic 815 — Portfolio Layer Method
Summary
In a conversation with Thomson Reuters, Eri Panoti discusses the changes that come with ASU No. 2022-01 and the impact those changes will have on financial institutions hedge accounting.
Eri Panoti in Thomson Reuters“This is a strategy that would be used by institutions that are liability sensitive — they want to protect themselves against rising interest rates and they’re in a position where their liabilities price faster than their assets.”
“This is a strategy that would be used by institutions that are liability sensitive – they want to protect themselves against rising interest rates and they’re in a position where their liabilities price faster than their assets,” Eri Panoti, a managing director at Chatham Financial, said. Entities should also pay attention to the rule’s transition requirements, Panoti said. The new guidance prohibits allocation of the basis adjustment while an entity is in an active hedging relationship, which means that institutions do not have the ability to allocate to the individual assets.
The standard also bridged the gap between hedge accounting and the CECL standard to clarify that an entity is prohibited from including hedge accounting impact in the credit loss calculations. Also notable is that it provides a one-time ability to transfer securities from held-to maturity (HTM) to available-for-sale (AFS).
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