The PRA’s thoughts on IFRS 9 - our comment

The PRA’s thoughts on IFRS 9 - our comment

On the 15th April the PRA wrote to the CFO’s of the top seven banks to give their initial opinions on the implementation of the new impairment requirements under IFRS 9. As expected for such a substantial subject, the findings, based on their written auditor reporting work, are varied in nature. Through discussion with a range of lenders and client engagements, we see many of the issues raised by the PRA. However, there are also some omissions that we expected to see.

IFRS 9 Impairment Models - A regulatory cost or a business opportunity?

IFRS 9 Impairment Models - A regulatory cost or a business opportunity?

The financial services industry has recently undergone a major change due to the introduction of IFRS 9 impairment requirements. This has come generally at increased costs due to either the redirection of internal resource or engagement of third parties to develop compliant models.

Bank of England stress test scenario and UK financial stability outlook

The Bank of England has today published the latest outlook from the Financial Policy Committee and outlined the scenario for 2018’s bank stress tests, providing us with an indication of its likely areas of focus in assessing UK financial stability.

4most comments on Bank of England’s stress test results

On 28th November, the Bank of England published the results from its 2017 stress tests, which provided an assessment of the stability of UK’s banking system.

The headlines show that the major UK banks have all passed the stress tests and are deemed strong enough to keep lending in a scenario more severe than that of the 2008 global financial crisis, which is good news for the sector.

Probability of moving from employment to unemployment at all-time-low

UK unemployment continues to fall. In the three months to February, there were 45,000 fewer people unable to find a job than was the case in September to November 2016. This is down 141,000 on a year ago.  Those looking at the numbers from a credit risk perspective can take heart: the last time the UK unemployment rate was this low was in the 1970s.  


On the 31st October 2016 the consultation period closed on new proposals by the Prudential Regulatory Authority (PRA), which are highly likely to alter the internal ratings based (IRB) approach that deposit institutions (banks and building societies) with residential mortgage lending portfolios will need to adopt when calculating their risk-weighted assets (RWA). 


Bank of England announcement of latest stress tests – Thoughts from 4most’s Chris Warhurst

Yesterday the Bank of England kicked off the 2017 stress testing season with publication of two economic scenarios.  While the second Annual Cyclical Scenario (ACS) looks at capital positions under stress and – given the economic assumptions are little different from last year, succeeds in its aim of making the exercise predictable – the first ever Bank Exploratory Scenario (BES) tests the banks’ ability to react to a world where the picture is one of compressed profit margins and competition for funding.

Households due to take on more debt in the long term as finances squeezed, Budget indicates

The final March budget didn’t spring any surprises.  While the Chancellor presented a more optimistic picture for short-term growth,  predications from the Office for Budget Responsibility’s (OBR) forecasts indicate that the improvement will likely not last long. 

Banks cut budgets for maths and models as rules change

The FT covered a piece on a regulatory crackdown that it claims removes the key incentive for measuring risk – view the full article here  Here is our response - this certainly covers the impact for investment banks as rather than retail.  What BCBS have announced is that they are potentially withdrawing IRB treatments for exposures against large corporates and other banks.

A Quiet Crisis?

While Brexit may be dominating the headlines at the moment, some experts believe that a debt of €360bn in bad loans within a fragmented Italian banking sector, could be the biggest threat of all. The suggestion is that even a “small crisis” could trigger a chain of events that could potentially threaten the stability of the European Union, credit ratings agency Moody’s is reported to have said.

Challenger banks – challenges ahead?

We’ve got quite used to hearing the misery and bad news associated with UK banks since the financial crisis, yet one of the positive sides to this debate has been the rise of the challenger banks. These secondary players have grown quickly, with several listing last year as the sector continues to attract both customer and investor interest. The challenger banks have also long been praised by some politicians as being responsible for injecting much-needed further competition into the UK banking sector.

Good regulation vs. rules with unintended consequences

Regulations that aim to increase understanding of risks for management, investors and the general public are effective, self-reinforcing and are likely to change emergent behaviour. Market wide stress testing initiatives have been particularly powerful in this regard – by requiring banks to consider explicitly the worst scenarios and publish the outcomes, the market has been driven to protect and plan for those events.