Europe Decides Against Softening Accounting Rules for Banks (1)

European Union officials are holding off on loosening accounting rules for banks as they gauge the impact of a raft of relief measures before taking further action.

The officials had been discussing options to ease the burden of new rules to help the banking sector deal with the coronavirus crisis, including a temporary suspension of the framework. Introduced in 2018, the regulations known as IFRS 9 force banks to make provisions for bad loans at an earlier stage than in the past.

For now, legal changes don’t appear to be necessary, according to an official involved in the talks who asked not to be identified because the deliberations are private. Diplomats stand “ready to take further actions” to mitigate the impact of the virus, including “possible additional non-legislative or legislative measures,” should they become necessary, according to a draft statement seen by Bloomberg.

Authorities have already reduced capital requirements for lenders and governments have stepped in with loan guarantees worth hundreds of billions of euros to help banks weather the fallout from the pandemic. They’ve also urged banks to cut dividend payouts and limit bonuses to preserve funds and be able to keep lending through the crisis.

The new accounting rules have become a concern as the unprecedented economic disruptions from the pandemic raise the likelihood of loan defaults. Authorities have tried to address the problem by telling banks they should consider the whole range of public support to companies when assessing asset quality, in a bid to limit the damage on balance sheets.

The draft statement, which still needs to be adopted by EU finance ministers, supported this approach by saying that “making full use of the flexibility provided for in the prudential and accounting framework is essential.” In line with pressure from financial authorities, it also urged banks to use capital freed up by supervisors for lending instead of investor payouts.

(Updates with other bank relief measures in fourth paragraph.)

To contact the reporters on this story:
Alexander Weber in Brussels at aweber45@bloomberg.net;
Boris Groendahl in Vienna at bgroendahl@bloomberg.net

To contact the editors responsible for this story:
Dale Crofts at dcrofts@bloomberg.net

Christian Baumgaertel, James Hertling

© 2020 Bloomberg L.P. All rights reserved. Used with permission.