Correct Gain/Loss Accounting for Negative Interest Rates

Our support of negative interest rates is very basic. We provide the ability to enter a negative rate on deals but the income/expense accounts are determined by whether the deal is a borrowing or lending rather than if the interest product is positive or negative.

For example

• Currently if it is a Borrowing – we post to interest expense, and if it is a loan we post to income.

• They want,

  • if it is a negative rate on a borrowing, then post to income (not expense).

  • if it is a negative rate on an investment, then post to expense (not income).

• Simple enough until you get to instruments which may change sign half way through the period

  • For example, Borrowing with qtly payment, but monthly rate sets +ve, -ve, +ve

  • Likely would require switch reversals if the net payment amount changed to a receipt in the second period, and then back to payment in the third period

• Also would need to update GL’s for closeouts and unwinds (as these would assume borrowing has a balance in the accrued int expense account)

It’s another requirement that would support the business case for reversal accounting.

JIRA: AQT-37187, AQT-37260 AQT-37738