Basel gives banks breathing space over new accounting rules

Tue Oct 11, 2016 12:10pm EDT
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By Huw Jones

LONDON Oct 11 (Reuters) - Global regulators will give banks time to adjust to potential increases in capital requirements when tougher accounting rules are introduced in 2018.

In the face of strong pushback from European governments over new capital requirements for lenders, the Basel Committee is taking a more accommodative stance than previously on how its rules should be implemented.

For an interim period, banks won't have to change their capital treatments when the new accounting rules come into force, the committee said in a consultation paper on the new requirements, released on Tuesday.

A core lesson from the 2007-09 financial crisis was that banks were too late in setting aside capital to cover souring loans, forcing taxpayers to bail out lenders.

New accounting rules from January 2018 will require lenders to account for some or all provisions upfront, well before a loan is effectively in default as under the current system.

This has a knock-on effect on capital requirements.

The Basel Committee of banking regulators from nearly 30 countries writes the capital rules applied by banks.

"The committee is considering the implications for regulatory capital, as the new accounting provisioning models introduce fundamental changes to banks' provisioning practices," it said in a statement.   Continued...