The staff presented a summary to the Board on discussions between an IASB team (consisting of selected Board members and staff) and a number of banks in July and September 2007. Those meetings were an outcome of the deliberations between the European Banking Federation (FBE - a banking representative body) and the IASB team which resulted in a presentation by the FBE at the IASB Board meeting in December 2006.

The discussions were aimed at identifying any issues arising from the application of the cash flow hedge accounting model in IAS 39. The staff sought opinion as to whether any clarification of IAS 39 was necessary.

The main issues potentially requiring clarification are:

• What is meant by a 'hypothetical derivative' for testing effectiveness?
• Improvement of the documentation/effectiveness methodology applied to existing hedging relationships.
• Designation of sub-benchmark interest rate items.
• The period in which deferred gains/losses should be reclassified if a hedging instrument is dedesignated.

Staff indicated that three of the above items could potentially be clarified without consuming excessive staff resources. It was noted that the formal process of bringing these clarifications in the standard could (at least partly) be done via the Annual Improvements Process. It was suggested that the points should be addressed in order of priority.

One Board member noted that the banks had no application issues in relation to some of the points raised by the FBE. It was suggested that a possible solution to deciding whether the issues were widespread in the banking sector would be a further meeting with the banks. It was noted by one Board member that if some constituents struggle with applying the cash flow hedge accounting provisions in IAS 39 the Board should provide clarification.

One Board member reckoned that the true issue facing the banking sector was the designation of demand deposits within the cash flow hedge accounting model under IAS 39 (the treatment of those under the current IAS 39 model led to the 'carve out' of the respective sections within the EU). The Board reaffirmed its previous decision that they will not change that principle.

To gain a common understanding of what are problems for the banks, it was suggested that a letter would be sent to the banks listing all the issues raised by the FBE, including an analysis of why some issues were not addressed in the Agenda Paper, either because it is not an issue that emerged from the talks with the banks or the Board is of the opinion that the standard is clear.

The Board did not make any decisions.