EBF response to BCBS consultation on regulatory treatment of accounting provisions - interim approach and transitional arrangements

12 January 2017

The EBF acknowledges that the interaction between accounting and capital regime should be revisited to address any overlapping measures and ensure their proper interaction.

Given that the understanding of the impact of the new accounting standards on capital ratios and the interaction and overlaps with the prudential measures will require a holistic review and time and extensive dialogue between regulators and industry to ensure its proper functioning, the EBF strongly supports the introduction of a transition period.

The EBF believes that the transition period should not be introducing any phasing before there is clarity on how the prudential framework will be amended in a long term.  Under a possible adverse scenario, accounting losses will be front loaded under expected loss models to a far greater extent whereas the timing of the materialization of the losses and its final amount will be unchanged. This is one of the reasons for the impact to be neutralized until an appropriate permanent solution is finalized. Unless retaining the existing framework unchanged was decided upon as the long-term solution, the industry would be transitioning to an incorrect end point. This could lead to unavoidably misleading disclosures and end-users basing their analysis on inaccurate information.

European Banking Federation’s key points are:

• The transition period should not be introducing any phasing before there is clarity on how the prudential framework will be amended long-term.
• For jurisdictions applying IFRS 9, the transition regime should apply from 2018. In the period from 1 January 2018 to 31 December 2019 a bank should include in CET 1 capital an adjustment amount of 100 % (coefficient 1).
• Should the final framework be in place by 2020, the phasing as envisaged by the Basel Committee could then be adopted which would make more sense given that the phasing-in would take place on the basis of a real impact.
• As for the approach to the calculation of the transitional adjustment amount, the EBF supports alternative 3 given its dynamic approach and conceptual relevance.

Full position

© EBF