Hedge Accounting

Often we find hedging with a swap makes sense from a cashflow perspective.  But the reality is that banks often must make swaps work from an accounting perspective.
The basic requirement of ASC815 is that swaps must be marked to market, with changes in the fair value of a swap flowing through income, unless the swap is qualified for hedge accounting.

Hedge Accounting exceptions fall into two broad categories, "Fair Value" hedges and "Cash Flow" hedges.

PRM can evaluate and model the potential accounting treatment and reporting for various swap strategies, then assist in the preparation of appropriate hedge accounting reports.

Fincad's Hedge Accounting Insight platform allows us to produce a comprehensive suite of valuation reports and hedge effectiveness tests for a broad array of hedges. 

Good News!
(ASU) 2017-12, Derivatives and Hedging (Topic 815):  Targeted Improvements to Accounting for Hedging Activities.  FASB approved new rules for hedge accounting in August of 2017, rules are effective 2019, but companies can elect to adopt early.   Changes simplify requirenments for finacial hedges (RATES) and open up qualitative approaches to measuring hedge effectiveness to a much broader scope of trades (Short Cut method for all!).  For community banks this means easier portfolio hedging (loans or securities), partial term hedging and simpler, commensense approaches to hedge accounting.  Good news for banks!