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Overview
In our comment letter, we generally support the FASB’s proposed amendments to the last-of-layer method that would allow entities to hedge multiple layers in a closed portfolio, rather than just a single layer, and would rename it the portfolio layer method. However, we recommend that the Board consider expanding the scope to include fair value hedges of interest rate risk for portfolios of all financial instruments, not just prepayable financial assets. We also support the proposed guidance that would prohibit entities from considering the basis adjustments in existing portfolio layer hedges when determining credit losses for assets in the closed portfolio. In addition, we highlight certain aspects of the proposal we believe may be operationally challenging to apply and therefore recommend that some aspects of the proposed guidance be removed or simplified.