How banks handle interest rate swings may soon be clearer to investors

Newly proposed rules by International Accounting Standards Board centre on new Risk Mitigation Accounting model

The International Accounting Standards Board (IASB) on Wednesday (Dec 3) proposed new rules to help banks show more clearly how they protect themselves against changes in interest rates.

These rules centre on a new approach called the Risk Mitigation Accounting model, which is also meant to make banks’ financial statements easier for investors and the public to understand.

Today, banks manage interest rate risk by looking at their loans and deposits as a whole. But current accounting rules require them to report this risk product by product, creating a mismatch between how banks actually manage risk and how their accounts are presented.

As a result, investors often cannot tell – just by reading the financial statements – how a bank shields itself from rising or falling interest rates. Many banks instead rely on regulatory filings or separate investor presentations to explain this.

The new model aims to close that gap. It would let banks show, directly in their financial statements, how their interest rate risk-management strategies work across their entire balance sheet.

The change is meant to give investors a clearer view of how a bank’s profits and cash flows might shift when interest rates move, IASB member Rika Suzuki told The Business Times.

The proposal applies to jurisdictions that use the International Financial Reporting Standards, a global rule book adopted by more than 140 countries, including Singapore.

The model would be optional and would sit alongside existing rules, rather than replace them. IASB is also proposing stronger disclosure requirements, so companies must explain their risk-management strategies in plain terms.

As the model is new and needs real-world testing, IASB has opened a longer-than-usual consultation period of 240 days, almost double the usual length, Suzuki said.

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Banks, investors and other stakeholders can test the model using their own data and submit feedback by July 2026.

“Our proposed Risk Mitigation Accounting model aims to bring accounting and risk management closer together, to enhance internal efficiency and strengthen communication between financial institutions and their stakeholders,” added Andreas Barckow, chair of IASB.

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