Join our experts at Stay Ahead of the Game, our regulatory & economics briefing on Thursday 27 September @ 4:30 pm
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.
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).
The financial services industry is currently busying itself with building models to predict the lifetime losses under the new IFRS 9 accounting standard, specifically for their stage 2 and stage 3 accounts. Generally, these are account level lifetime loss predictions with the ability to mechanically adjust to use probability weighted economic scenarios.
IFRS 9 (the new accounting standard) is fast approaching with many organisations already in full swing in terms of development and with their chasing pack firmly in the planning stages for design and build. But just how ready are you for the impending changes?
Right now, most organisations are well on their way to coming up with a compliant solution for IFRS 9. Management are starting to understand the direct impact to their P&L (profit and loss) although thought naturally moves to the other impacts of the implementation of this regulation.
IFRS9 is the new accounting standard from the IASB for credit losses on portfolios of loans that is expected to come into effect in January 2018 across at least 96 of 174 jurisdictions around the globe. Work in many banks and lenders is well progressed towards meeting the reporting deadline. I will not repeat the considerations required in the building of a new provision process here as that has been well covered in many places previously.
Finance services regulation is difficult to get right – knee jerk reactions often lead to unintended consequences and potentially the roots of the next bubble or crisis.
The FT covered a piece on a regulatory crackdown that it claims removes the key incentive for measuring risk – view the full article here https://next.ft.com/content/672e8d6a-1d63-11e6-b286-cddde55ca122 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.