Automating Hedge Accounting to Support Programmatic Hedging Programs

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Von Garces
Hedge Accounting Director
Hedge Accounting

Banks and credit unions that maintain always-on, disciplined derivatives hedging programs should be best positioned to manage interest rate fluctuations and market cycles. Hedge accounting is critical to a well-functioning hedging strategy, ensuring trades will be accounted for as planned.

Rates uncertainty persists

In our March webinar, my colleague Isaac Wheeler suggested there is a distinct possibility that rates will remain high and could even rise. Early April’s CPI numbers seemed to substantiate this thought. Jamie Dimon also recently warned the U.S. might see interest-rate spikes. Yet, there remains a case to be made for lower rates as well because many point to a “maturity wall” that will require billions of dollars of debt to be refinanced at current market rates, potentially slowing growth and the economy at large.

With all this uncertainty, programmatic hedging programs remain the most effective way to manage interest rate risk. However, with increased hedge volumes comes increased demands on an accounting organization.

Data-driven hedging programs

Non-compliance and reporting risk are rising with each new regulatory rule proposal and reporting guideline, spurring depositories to enlist automated accounting systems to stay on top of today’s lightning-fast trade lifecycle. The opportunity cost of sticking with manual accounting and reporting processes may be steep, as legacy methods involve a coordinated, resource-intensive effort across accounting, risk, lending, treasury, and funding teams. In its 2024 hedging accounting report, EY called out numerous challenges in today’s environment, including measuring hedge effectiveness, identifying the sources of hedge ineffectiveness due to lack of granular data and fragmented systems, and “articulating the intricacies of complex hedge structures in a clear and concise manner.”

Automation to mitigate risks and adapt to regulatory shifts

A Thomson Reuters 2023 report found that corporate risk and compliance leaders listed their top two long-term strategic priorities as keeping abreast of upcoming regulatory and legislative changes followed by the challenge of identifying and mitigating emerging risks. Manual, spreadsheet driven accounting processes increase reporting and compliance risk in an environment where “always on” hedging programs are becoming more and more prevalent.

A comprehensive hedge accounting software solution should handle reporting and reconciliation tasks, month-end journal entries and effectiveness assessments, and execute all accounting activities in full compliance with ASC 815 and 820.

ROI of hedge accounting

Automation in hedge accounting enables teams to tackle higher value risk management functions while minimizing time on operational tasks. Our cloud-based hedge accounting solution powers an institution’s ability to access real-time market data and analytics, swiftly assess the potency of hedging programs, create new hedge instruments, and test the hedge accounting permissibility of potential strategies.  This web-based system approach can provide comfort in knowing system methods are also implemented by leading peers.

Equipped with a real-time, accurate view of their interest rate risk profile, banks and credit unions can execute consistent risk management programs that will be better positioned to steer safely through today’s volatile rates environment.

If you have questions or comments, contact us here. We are always interested in hearing from you.


  1. High-performing institutions are moving away from the notion that hedging programs are only necessary under specific economic conditions.
  2. Increased hedging volumes put a greater burden on accounting teams, potentially exposing manual and inefficient hedge accounting processes.
  3. Automation in derivatives hedge accounting not only improves operational efficiency but also empowers risk and treasury managers to enact effective hedging strategies.

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