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The Basel Committee on Banking Supervision has published details of interim regulatory treatment of accounting provisions and standards for transitional arrangements under Basel III capital framework.
The International Accounting Standards Board and the US Financial Accounting Standards Board have adopted new provisioning standards that require the use of expected credit loss models rather than incurred loss models - the International Financial Reporting Standard (IFRS) 9 and the Current Expected Credit Losses (CECL), respectively. These standards modify provisioning standards to incorporate forward-looking assessments in the estimation of credit loss. The new IASB Standards will apply from January 1, 2018, although earlier application is permitted. The new US FASB Standards will apply from January 1, 2020 for certain banks that are public companies and from 2021 for all other banks, although early application by all banks is permitted from 2019.
The Basel Committee consulted in October 2016 on a proposal to retain, for an interim period, the current regulatory treatment of provisions as applied under both the standardised approach (SA) and internal ratings-based (IRB) approaches. In addition to the interim proposals, the Basel Committee identified a number of reasons why it may be appropriate to introduce transitional arrangements for the impact of expected credit loss accounting on regulatory capital.
The Basel Committee supports the use of expected credit loss approaches and sets out considerations for retaining the current regulatory treatment of accounting provision for an interim period as well as the transitional arrangements to take effect from January 1, 2018 and the corresponding Pillar 3 disclosure requirements.
View the press release.
View the publication.