RE: Reference Rate Reform—Deferral of the Sunset Date of Topic 848 and Amendments to the Definition of the Secured Overnight Finance Rate (SOFR) Overnight Index Swap Rate File ReferenceNo. 2022-001
Ms. Hillary Salo,
Technical Director
Financial Accounting Standards Board
401 Merritt 7
P.O. Box 5116
Norwalk, CT 06856-5116
Dear Ms. Salo:
The American Bankers Association (ABA) appreciates the opportunity to comment on the Exposure Draft, Proposed Accounting Standards Update— Reference Rate Reform—Deferral of the Sunset Date of Topic 848 and Amendments to the Definition of the Secured Overnight Finance Rate (SOFR) Overnight Index Swap Rate File Reference No. 2022-001 (“ED”). ABA supports both the deferral of the sunset date and the expansion of the definition of the SOFR rate eligible to be designated a benchmark index for hedge accounting purposes. The use of derivative instruments in managing various financial risks is critical to the operations of many banks and other entities and it is important that in this time of industry transition away from the London Interbank Offered Rate (LIBOR) that the accounting standards are proactive and meet the needs of the developing markets. Accordingly, ABA also supports the Board’s continued work towards the development of a principle for interest rates eligible for fair value hedge accounting in the Reference Rate Reform—Fair Value Hedging project. The completion of that project would obviate the need to assess individual rates as the post-LIBOR market continues to evolve, freeing up the Board’s resources for the high priority projects added as a result of the Agenda Consultation Invitation to Comment. In addition, a principle that is flexible enough to include credit sensitive rates would increase decision-useful information available to financial statement users on banks’ interest rate risk management strategies.
As the Board continues work on Reference Rate Reform—Fair Value Hedging project, ABA asks the Board to consider the following provisions in the interim to facilitate near-term efforts to transition from LIBOR:
ABA supports adding the Bloomberg Short-Term Bank Yield Index (BSBY) as a permissible interest rate index for hedge accounting purposes. Specifically, ABA asks FASB to add BSBY to the Master Glossary of the Codification and for BSBY to be considered a benchmark interest rate. BSBY was developed as a credit-sensitive alternative rate to LIBOR2. BSBY is calculated using a publicly available and transparent methodology from consolidated, anonymized transaction data and executable quotes from primary markets in commercial paper, certificates of deposit, bank deposits and short-term corporate bonds.
In response to the transition from LIBOR, a portion of variable rate loans are using BSBY as the referenced index. Some banks utilize the use of derivatives to receive BSBY/pay fixed interest rate swaps to hedge the fair value of the fixed rate loans. To permit risk management activities to be clearly reflected in those banks’ financial statements, FASB should permit BSBY to be eligible to be designated as the hedged risk in a fair value hedge. This will allow fair value hedge accounting to be applied to a fixed rate loan hedged by a receive BSBY/pay fixed interest rate swap to align the accounting with risk management practices.
Thank you for your attention to these matters and for considering our views. Please feel free to contact me ([email protected]; 202-663-5318) if you would like to discuss this in more detail.
Sincerely,
Joshua Stein
