The Financial Stability Institute (FSI) of BIS published a paper examining a range of prudential policy issues that may need to be considered once banks migrate to expected credit loss (ECL) provisioning under International Financial Reporting Standard (IFRS) 9. The paper also presents the findings of an FSI survey on provisioning practices in Asia.
The paper outlines the key challenges to the implementation of ECL provisioning and explores a range of prudential policy considerations that may be useful for all supervisory authorities planning to adopt ECL provisioning under IFRS 9. Regardless of the policy options being considered, there is a rationale for supervisors to seek powers to impose adjustments to regulatory capital when accounting provisions are insufficient to cover expected losses from a prudential perspective. The paper argues that such powers can help to address supervisors’ prudential concerns while fully respecting the role of the accounting standard-setters in establishing the criteria that governs the valuation of assets and the financial statements of banks.
Loan-loss provisioning practices can materially affect the net income and capital accounts of banks, both of which are used by market participants and supervisors to assess an institution's financial health. The shift from incurred to ECL provisioning under IFRS 9—starting in 2018—is a welcome development. Yet IFRS 9 is a complex standard and subject to significant implementation challenges that also have prudential implications.
Related Link: Report (PDF)
Previous ArticleEuropean Council Adopts Regulations on Securitization
EBA published guidelines on loan origination and monitoring, which bring together prudential standards and consumer protection obligations, along with the anti-money laundering and the Environmental, Social, and Governance (ESG) considerations.
EBA published a consultation paper on the draft amended regulatory technical standards on own funds and eligible liabilities.
EBA published a report on convergence of supervisory practices in 2019.
PRA published a set of questions and answers (Q&A) covering common queries regarding residential and commercial property valuations, for the purpose of the Capital Requirements Regulation (CRR), during the period of disruption caused by COVID-19 pandemic.
IOSCO proposed updates to its principles for regulated entities that outsource tasks to service providers.
MAS announced that the first phase of the Veritas initiative will commence with the development of fairness metrics in credit risk scoring and customer marketing.
BoE published the Statistical Notice 2020/4 to update the buy-to-let (BTL) Phase 2 and Phase 3 definitions for the Interest Rate Type data item.
FSI published a brief note that examines challenges facing the banking sector as a result of the payment deferral programs put in place to support borrowers affected by the COVID-19 pandemic.
PRA published the policy statement PS14/20, which contains the supervisory statement SS1/20 and the feedback to responses to the consultation paper CP22/19 on expectations for investment by firms in accordance with the Prudent Person Principle, or PPP, as set out in the Investments Part of the PRA Rulebook.
EBA published an opinion following the notification by the French macro-prudential authority, the Haut Conseil de Stabilité Financière (HCSF), of its intention to extend a measure introduced in 2018 on the use of Article 458(9) of the Capital Requirements Regulation (CRR).