Liquidity test clouds Ibor switch accounting rules
IFRS 9 update will lead to hedge accounting breakdown if new rates markets lack depth
Standard-setters have tackled some industry concerns in accounting rules designed to help markets transition away from Libor benchmarks – but are already drawing fire over an insistence that replacement risk-free rates must pass a 24-month liquidity test. Failure would result in a loss of the hedge accounting status that limits earnings volatility for derivatives users.
“This test is going to continue to stir up controversy. I think it could be quite a long time before RFRs are deemed liquid
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