Banks are promised calm after shake-up

BANKS WILL get a “period of calm” after new rules forcing them to provision earlier for loanlosses come into effect from 2018, a senior global accounting official said.

The rules are being introduced to avoid taxpayer rescues of banks that run into trouble because they have not set aside money early enough to cover loans that go into default.

The rules were produced by the International Accounting Standards Board (IASB), and will be mandatory for banks in more than 100 countries, including the European Union. They have prompted concerns in the EU where banks in countries like Italy and Germany are already struggling to convince investors they are holding enough capital.

In addition, all IASB rules are reviewed on a routine basis, raising the prospect of more upheaval for the banking industry.

“We will do our post-implementation review, but the reality is that people have asked for a period of calm after all these big new standards,” Sue Lloyd, the newly appointed Vice-Chair of the IASB, said.

The rules, known collectively as IFRS9, will mean costly upgrades for financial IT and accounting systems as well as potentially more expensive capital. Banks will have to make some provision even on the first day of the loan, and long before a default.