NEWS RELEASE 06/27/12

FASB Publishes Proposal for Disclosing Liquidity and Interest Rate Risk

Norwalk, CT, June 27, 2012—The Financial Accounting Standards Board (FASB) today issued for public comment a proposed Accounting Standards Update (ASU) intended to improve financial reporting about certain risks inherent in financial instruments and how they contribute to the reporting organization's broader risks. Stakeholders are asked to provide input by September 25, 2012.

The Update is intended to address stakeholders' concerns about how organizations disclose their exposures to certain risks related to financial assets, liabilities, obligations, and other financial instruments. Specifically, the ASU proposes new disclosures related to liquidity risk and interest rate risk, two risks that were prominent during the recent financial crisis and that continue to be relevant to reporting organizations on an ongoing basis. The FASB previously issued enhanced disclosure requirements about credit risk.

The proposed liquidity risk disclosures are intended to provide information about the risk that the reporting organization will encounter difficulty when meeting its financial obligations, and would apply to all public, private, and not-for-profit organizations. However, the nature of the disclosures will depend on whether the reporting organization is considered a financial institution, as defined by the proposed Update.

The proposed interest rate risk disclosures would apply only to financial institutions and are intended to provide information about the exposure of financial assets and financial liabilities to fluctuations in market interest rates.

"As part of the FASB's financial instruments project, stakeholders consistently requested improved disclosures about an organization's exposure to interest rate risk and liquidity risk," said FASB Chairman Leslie F. Seidman. "Therefore, the Board is proposing guidance that would help users of financial statements better understand organizations' exposures to risks and the ways in which those risks are managed."

The amendments in the proposed ASU on liquidity risk disclosures would require:

A financial institution to disclose the carrying amounts of classes of financial assets and financial liabilities in a table, segregated by their expected maturities, including off-balance-sheet financial commitments and obligations.
A financial institution that is also a depository institution to disclose information about its time deposit liabilities, including the cost of funding in a table or list during the previous four fiscal quarters.
An organization that is not a financial institution to disclose its expected cash flow obligations in a table, segregated by their expected maturities, without being required to include the reporting organization's financial assets in that table.
All reporting organizations to provide their available liquid funds in a table, which includes unencumbered cash, high-quality liquid assets, and borrowing availability.
All reporting organizations to provide additional quantitative or narrative disclosure of the organization's exposure to liquidity risk, including discussion about significant changes in the amounts and timing in the quantitative tables and how the reporting organization managed those changes during the current period.

The amendments in the proposed ASU on interest rate risk disclosures would require a financial institution to disclose:

The carrying amounts of classes of financial assets and financial liabilities according to time intervals based on the contractual repricing of the financial instruments.
An interest rate sensitivity table that presents the effects on net income and shareholders' equity of hypothetical, instantaneous shifts of interest rate curves.
Quantitative or narrative disclosures of the organization's exposure to interest rate risk, including discussion about significant changes in the amounts and timing in the quantitative tables and how the reporting organization managed those changes during the current period.

In May 2010, the FASB issued proposed ASU, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities-Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815). As a result of the FASB's outreach and feedback from stakeholders, the Board decided to publish this proposed Update separately from the classification and measurement aspects of the project on accounting for financial instruments. The FASB's redeliberations of the May 2010 proposed ASU are ongoing.

The FASB has not yet decided on an effective date but plans to do so after seeking stakeholder comments.

Before the conclusion of the comment period, the Board will conduct additional outreach with preparers, users, and auditors of financial statements to solicit their input on the proposal. Further information including the Exposure Draft, podcast, and a "FASB In Focus"— a high-level summary of the proposal—is available on the FASB website at www.fasb.org.