LONDON (Reuters) - European Union lawmakers will fast-track rules giving banks breathing space to comply with a new accounting standard that forces them to provision upfront for possible defaults on loans.
The new “IFRS 9” accounting rule applies from next January, and is likely to push down a bank’s core capital ratio, a benchmark of financial health that is closely tracked by investors, even though the level of risk remains unchanged.
Global regulators have proposed a transition period of up to five years for banks to build up provisioning to required levels under the rule, but it needs to be introduced into EU law to take effect.
An EU legislative proposal is now before the European Parliament and the bloc’s member states, but approval of EU rules can often take many months, which would leave banks having to comply with the accounting rule in full from day one.
“We have decided to fast-track ... IFRS 9,” Roberto Gualtieri, chairman of parliament’s economic affairs committee, said on Tuesday.
Daniele Nouy, the European Central Bank’s top banking supervisor, told the committee it was important for lawmakers to act fairly soon on the transitional measures as supervisors were powerless to act if there is no legislation ready.
“However, it is important that the mechanism should be simple in nature, also for the market to understand,” Nouy said.
Frederic Oudea, chairman of the European Banking Federation, an industry body, also told lawmakers that an “accelerated agreement” was needed so as to provide the intended relief.
Reporting by Huw Jones, editing by David Evans