In September 2024, ISDA carried out a survey of its members to obtain views on the development of the dynamic risk management (DRM) model. In particular, the survey sought to understand the accounting and regulatory treatment of Alternative Tier 1 (AT1) financial instruments and to contribute this information to the development of the International Accounting Standards Board’s DRM model. The respondents represented nearly 60% of the total size of the AT1 market, which Reuters estimates at approximately $275 billion.
The survey shows that:
- For balance sheet classification under International Financial Reporting Standards, the majority of respondents classify their AT1s as equity;
- The majority of respondents include their AT1s for interest rate risk in the banking book (IRRBB) as equivalent to financial liabilities. This indicates that for risk management purposes, AT1s are an integral part of respondents’ interest rate risk exposure;
- There is strong desire for the inclusion of AT1s in the current net open position as they are integral to the risk management strategy, with evidence from inclusion in IRRBB risk metrics (eg, economic value of equity) and the banking risk management framework indicating that lack of inclusion could conflict with the objectives of the DRM model.
Click on the attached PDF to access the survey results.
Documents (1) for ISDA Publishes Results of Survey on AT1 Treatment in DRM Model
Latest
Response to FASB on KPIs for Business Entities
On April 30, ISDA submitted a response to the Financial Accounting Standards Board’s (FASB) proposal on financial key performance indicators (KPIs) for business entities. In the response, ISDA addressed the implications of KPI standardization, its potential impact on financial reporting...
Updated OTC Derivatives Compliance Calendar
ISDA has updated its global calendar of compliance deadlines and regulatory dates for the over-the-counter (OTC) derivatives space.
Response on Commodity Derivatives Markets
On April 22, ISDA and FIA submitted a joint response to the European Commission’s (EC) consultation on the functioning of commodity derivatives markets and certain aspects relating to spot energy markets. In addition to questions on position management, reporting and...
Episode 50: The Value of Derivatives
A new report from ISDA shows that companies all over the world use derivatives to alleviate uncertainty, transfer risk and enhance profitability. ISDA discusses the findings with Boston Consulting Group’s Roy Choudhury. Please view this page via Chrome to access...