Practical guide on general hedge accounting Dec 2013 | Page 25

Practical guide

PwC insight:
Banks often use credit default swaps linked to an index to hedge the credit risk for a portfolio of instruments.
Due to the IFRS 9 requirement of a link between the financial instrument through the matching of the name of
the borrower or seniority, such index-based credit default swaps would not be eligible hedging instruments.
Another aspect to consider is that the fair value of a financial instrument is comprised not only of credit risk
but it considers additional effects (for instance, interest rate risk). When designating a financial instrument at
fair value through P&L those additional effects would not be offset by the changes in the value of the
credit derivative.

General hedge accounting

PwC  23