Bank earnings may look less volatile: FASB fast-tracks three hedge accounting fixes

Banks and big companies could soon report steadier earnings as U.S. accounting rule-setters move to make it easier to match hedges with the risks they're meant to offset.

In a meeting on Feb. 25, 2026, the Financial Accounting Standards Board (FASB) unanimously voted to propose targeted hedge accounting rules aimed at cutting down on what some call "paper volatility" - big swings in reported profits that can happen when companies use derivatives to manage risk, but accounting rules don't let the hedge "count" the way the business intended.

The proposal will be issued with a 60-day comment period.

"Hedge accounting is an attempt to fix that asymmetry," FASB staff told the board, explaining the core problem: derivatives are marked to market, while the product they're supposed to hedge often isn't, creating a mismatch that can hit earnings.

Why everyday investors should care

Investors that follow bank stocks have seen it: profits can look jumpy when interest rates swing - even if the bank is doing what it's supposed to do to manage risk.

Board member Joyce Joseph said a key bank metric, net interest margin (NIM), can be "economically incomplete and sometimes misleading" depending on whether hedges qualify for special accounting treatment, especially "during volatile interest rate environments."

Banks often try to patch over the issue by presenting "a pro forma NIM or an adjusted NIM," she said.

That's part of what FASB is trying to reduce: financial statements that force investors to rely on side calculations and "adjusted" figures to understand what's really going on.

The three changes FASB wants to tackle fast

The board agreed to add one near-term project covering three narrow fixes:

1) Let banks hedge interest-rate risk on "held-to-maturity" bonds (HTM). HTM classification is in ASC 320; the hedge accounting change would be in ASC 815. Today, GAAP generally blocks hedge accounting for interest-rate hedges on HTM debt securities, a restriction based on the idea it's contradictory to say a company will hold a bond to maturity and also hedge its interest-rate risk. Staff pushed back, saying financial institutions manage interest-rate risk on an overall basis and HTM holdings still contribute to that exposure.