Accounting bodies no closer on new bank loan rules

LONDON Tue Jul 23, 2013 7:11pm BST

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LONDON (Reuters) - Accounting bodies found little common ground on Tuesday to help shield taxpayers from further bank bailouts despite calls from governments for faster progress.

The world's 20 largest economies (G20) appealed in 2009 during the financial crisis for a single approach that forces lenders to make provisions for souring loans much earlier.

Banks currently make provisions when a loan has effectively defaulted, leaving little time to find fresh capital when markets are in a rocky state, as they were during the crisis.

Last weekend, the G20 asked the two accounting bodies negotiating the reform to find a common rule by the end of 2013, a deadline that has shifted several times as the prospect of compromise moved further out of sight.

The Basel Committee of banking regulators from nearly 30 countries has said it is essential that the bodies reconvene to find a single approach to aid financial stability.

The two bodies met on Tuesday but found little obvious room for compromise.

"Everyone wants convergence but nobody is telling us how to do it," Russell Golden, the new chairman of the U.S. Financial Accounting Standards Board, told the meeting in London.

FASB sets accounting rules for the United States. It wants banks to set aside funds to cover the risk of future losses on a loan as soon as it is issued.

Such provisions are calculated bearing in mind such factors as the credit standing of the borrower, the reliability of the asset against which the loan is secured and the fortunes of the wider economy.

The International Accounting Standards Board (IASB), whose rules are used in over 100 countries, wants only a portion of possible loan losses provisioned for from the outset.

Further provisions would be set aside if and when the quality of a loan worsens.

The amount of capital a bank would need to tie up in such provisions would be starkly different under either proposal.

FASB officials said their scenario would see an increase in capital reserves at U.S. banks. If the IASB model were applied, those reserves would fall by about 15 percent, one FASB official told the meeting.

An IASB official told the meeting its public consultation had revealed no support for the U.S. model. "There were not many suggestions on how to converge," the official said.

An FASB official said investors and most analysts it had contacted preferred its approach.

Staff from both boards will search for common ground ahead of the next gathering in September, a spokesman for the IASB said.

Even if a common rule is agreed by December, it could take up to three years before it takes effect given the time that banks will need to adapt their IT systems - marking a decade since the financial crisis started in 2007 with the credit crunch.

(Editing by Tom Pfeiffer)

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