Reuters calls on Dan Gentzel to explain the FASB's portfolio-layer-method guidance
"[Risk managers] want to take as much of their fixed-rate assets as they can, put them in a portfolio, to be able to hedge that exposure."
U.S. accounting rulemakers plan to issue a flexible hedge accounting rule called the portfolio-layer-method mid-April, according to a source.
The rule will expand the last-of-layer model, a technique that was introduced four years ago, to the portfolio-layer-method, which allows more than one hedge against a closed portfolio of assets. Currently, entities are only able to do a single constant-notional hedge against a single closed portfolio of assets.
“The guidance will facilitate more robust financial risk management primarily for banks and financial institutions,” Dan Gentzel, global head of hedge accounting at Chatham Financial said on February 9, 2022. “What it’s really geared toward doing is allowing hedging of a pool of fixed-rate financial assets and that’s hard to do under the current accounting framework,” he said.
Chatham Financial, headquartered in Kennett Square, Pennsylvania, is the largest independent financial risk management advisory and technology firm, specializing in debt and derivative solutions.
“The current last-of-layer model has limitations and does not facilitate the dynamic risk management strategies desired by financial risk managers,” Gentzel explained. “They want to take as much of their fixed-rate assets as they can, put them in a portfolio, to be able to hedge that exposure – and so this guidance that’s coming out is going to facilitate that.”
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