Banks fear loss of hedge accounting for CCP novations


Derivatives users may lose hedge accounting privileges on trades that have been amended to face a new counterparty - known as a novation - under the terms of an exposure draft issued by the International Accounting Standards Board (IASB) in February. If the new interpretation is applied retrospectively, market participants will have to break up existing hedge accounting relationships and create new ones, potentially resulting in earnings volatility, accounting experts warn.

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