Portfolio Hedging Under the FASB’s New Last of Layer Approach

Converting fixed rate assets to floating in a rising interest rate environment can be a proactive balance sheet risk management strategy for liability-sensitive financial institutions.  The new hedge accounting rules, ASU 2017-12 Derivatives and Hedging, published in August 2017 expand the range of accounting-friendly hedging strategies to accomplish this goal, but most dramatically under the new Last of Layer portfolio hedging approach.  In this piece, we provide a summary of how to construct a portfolio hedge using the Last of Layer approach.

View Document