FASB Proposes Update to List of Permissible U.S. Benchmark Interest Rates for Hedge Accounting
Norwalk, CT, February 20, 2018—The Financial Accounting Standards Board (FASB) today issued a proposed Accounting Standards Update (ASU)
that would expand the list of U.S. benchmark interest rates permitted
in the application of hedge accounting. Stakeholders are encouraged to
review and provide comment on the proposal by March 30, 2018.
FASB Accounting Standards Codification® Topic 815,
Derivatives and Hedging, provides guidance on the risks associated with
financial assets or liabilities that are permitted to be hedged. Among
those risks is the risk of changes in fair values or cash flows of
existing or forecasted issuances or purchases of fixed-rate financial
assets or liabilities attributable to the designated benchmark interest
rate (referred to as interest rate risk).
In the United States, eligible benchmark interest rates under Topic 815
are interest rates on direct Treasury obligations of the U.S. government
(UST), the London Interbank Offered Rate (LIBOR) swap rate, the
Overnight Index Swap (OIS) Rate based on the Fed Funds Effective Rate,
and the Securities Industry and Financial Markets Association (SIFMA)
Municipal Swap Rate.
Based on concerns about the sustainability of LIBOR, a committee
convened by the Federal Reserve Board and the Federal Reserve Bank of
New York recently identified a broad Treasury repurchase agreement
(repo) financing rate referred to as the Secured Overnight Financing
Rate (SOFR) as its preferred alternative reference rate.
The proposed ASU would add the OIS rate based on SOFR as a fifth U.S.
benchmark interest rate to help companies and other organizations avoid
the potential cost and complexity associated with using different cash
flows and discount rates to measure the hedged item and the hedging
Information about the proposed ASU is available at www.fasb.org.