- Wednesday, October 16, 2024
Bank of America has announced that it will recognize a substantial $1.6 billion charge in the fourth quarter. This charge is directly connected to the bank's transition away from the London Interbank Offered Rate (LIBOR) benchmark.
The charge primarily stems from the discontinuation of the Bloomberg Short-Term Bank Yield Index (BSBY) as an alternative reference rate. In a recent regulatory filing, Bank of America disclosed that it had to "de-designate" certain interest-rate swaps used in cash flow hedges for specific BSBY indexed loans.
Though this is a non-cash, pretax charge, Bank of America plans to present it in revenue through market making and similar activities. The impact of this charge will ultimately be recognized back in interest income over different periods until 2026.
As of December 31, the charge has also lowered Bank of America's common equity tier 1 ratio by eight basis points.
Bank of America attributes this accounting change to its expectation that interest payments on BSBY-indexed loans will shift to the Secured Overnight Financing Rate (SOFR). SOFR serves as another alternative reference rate to LIBOR. Importantly, the bank notes that this transition will have only a "nominal impact" on the economics of the loans.
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