Banks will be given breath­ing space over new ac­count­ing rules

The Sun (Malaysia) - - SUNBIZ -

LON­DON: Global reg­u­la­tors will give banks time to ad­just to po­ten­tial in­creases in cap­i­tal re­quire­ments when tougher ac­count­ing rules are in­tro­duced in 2018.

In the face of strong push­back from Euro­pean gov­ern­ments over new cap­i­tal re­quire­ments for lenders, the Basel Com­mit­tee is tak­ing a more ac­com­moda­tive stance than pre­vi­ously on how its rules should be im­ple­mented.

For an in­terim pe­riod, banks won’t have to change their cap­i­tal treat­ments when the new ac­count­ing rules come into force, the com­mit­tee said in a con­sul­ta­tion pa­per on the new re­quire­ments, re­leased yes­ter­day.

A core les­son from the 2007-09 fi­nan­cial cri­sis was that banks were too late in set­ting aside cap­i­tal to cover sour­ing loans, forc­ing tax­pay­ers to bail out lenders.

New ac­count­ing rules from Jan­uary 2018 will re­quire lenders to ac­count for some or all pro­vi­sions up­front, well be­fore a loan is ef­fec­tively in de­fault as un­der the cur­rent sys­tem. This has a knock-on ef­fect on cap­i­tal re­quire­ments.

Banks were wor­ried that pro­vi­sion­ing un­der the new ac­count­ing rules could dent their core cap­i­tal ra­tios, forc­ing them to find ex­tra cap­i­tal to re­as­sure mar­kets about their sol­vency.– Reuters

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