Bloomberg News

Basel Chief Concerned Over Accounting Differences on Loan Losses

January 04, 2013

Global banking regulators are concerned that loan losses will be treated differently under international and U.S. accounting standards, the chairman of the Basel Committee on Banking Supervision said.

Efforts by the U.S. Financial Accounting Standards Board and International Accounting Standards Board to replace incurred loss credit impairment models may not converge after the FASB decided “to pursue an impairment model that differs from the IASB’s model,” Stefan Ingves, the Basel group’s chairman, said in a statement today.

“While the boards have made significant progress in developing expected loss models, we also remain concerned as to whether the eventual standards will result in the early and timely build-up of sufficient levels of credit allowances,” Ingves said.

The two accounting boards are looking to change how reserves and asset values are measured after the financial crisis forced lenders to devote capital to losses, leaving some of the world’s largest banks struggling to meet regulatory thresholds and remain solvent. Banking regulators want a single set of accounting standards to strengthen financial supervision and better recognition of loan-loss provisions using a broader range of credit information, Ingves said.

The FASB last month proposed revised rules that would push banks to start recognizing losses on loans, debt securities and other financial receivables when firms see early signs of potential loss. It said this may cause banks’ loan loss reserves to jump about 50 percent. U.S. banking regulators have urged firms to recognize more losses on their housing-related lending.

While the FASB plans to move from an “incurred loss” model to an “expected loss” model, similar to changes under consideration by the IASB, it won’t use an IASB model with three separate “buckets” of loans, FASB chairman Leslie Seidman said last month. The FASB won’t use an IASB approach that bases loss estimates on expectations for the coming 12 months, she said.

The FASB didn’t immediately reply to a call and an e-mail seeking comment before office hours in Norwalk, Connecticut.

The IASB is grateful for the Basel committee’s input and looks “forward to continuing to work in close cooperation with the committee as we finalize this important project,” spokesman Chris Welsh said in an e-mailed statement.

To contact the reporter on this story: Aoife White in Brussels at awhite62@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.


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