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The European Systemic Risk Board gave a broadly positive
assessment of the new International Financial Reporting
Standards (IFRS 9), which are intended to make banks safer and
avoid a new financial meltdown.
But it warned about the possible side effects of requiring banks
to set aside money for expected credit losses (ECL), instead of
after a loan has soured, if the economy suddenly contracts.
"In a scenario where many banks face a simultaneous increase in
ECLs, (it) may result in a system-wide reduction in bank lending
and de-leveraging pressures," the ESRB, chaired by European
Central Bank President Mario Draghi, said in a report.
To mitigate this effect, the ESRB said, supervisors should be
prepared to reduce other capital requirements for banks, such as
the counter-cyclical capital buffer, in a downturn.
European banks expect new accounting rules due to take effect
next year to eat into their capital and push up the amount of
money they must set aside against bad loans by nearly a fifth, a
survey by the EU's banking watchdog showed last week.
The new rules go into effect on Jan. 1, 2018, but heavy
resistance by the banking lobby, particularly in Italy, has led
European lawmakers to consider phasing them in over several
years.
(Reporting By Francesco Canepa, editing by Larry King)
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