Banks will be given breathing space over new accounting rules
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