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In the EBA’s view, transitional arrangements may be introduced for various reasons, which are as follows:
• One-off impact: the initial impact of IFRS 9 could be significant for some institutions in some Union Member States, depending on several aspects, as described in the EBA report on its first impact assessment of IFRS 9 and to be further investigated in the ongoing second EBA impact assessment of IFRS 9. Institutions are not yet able to estimate with reasonable certainty the initial impact on 1 January 2018 when IFRS 9 comes into effect, considering also that, all other elements being equal, the economic conditions could be different when IFRS 9 is initially applied.
• Interaction with the regulatory framework:there is ongoing work in the regulatory community on understanding the interaction of accounting with regulatory provisions in the context of IFRS 9 and on assessing the need to revise the regulatory framework to ensure that prudential objectives are met without unintended consequences.
• Level playing field between SA and IRB institutions:institutions using the standardised approach (SA) to measure credit risk would experience a negative impact on CET1 due to the increased provisions under IFRS 9 and would not be able to recognise any part of their accounting provisions in Tier 2 capital if all provisions were considered specific (see also the relevant section in this opinion on credit risk adjustments), while institutions using the IRB approach to measure credit risk might have regulatory expected losses exceeding accounting provisions under IAS 39, which could reduce the negative impact on CET1 (or even result in no impact) under IFRS 9, and they would be able to recognise in their Tier 2 capital any excess accounting provisions.
The EBA acknowledges that under IFRS 9 the level of provisions could change over time and in particular during downturns – all other elements being equal – because there will be more exposures from stage 1 (for which 12 months’ expected losses are calculated) migrating to stage 2 (for which lifetime expected losses are calculated). This is a result of the forward-looking nature of IFRS 9, which should also help in the early recognition of losses. The EBA believes that it is not the objective of transitional arrangements to account for potential change in provisions, which may occur also after the end of the transitional period.