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Third seminar on IFRS for Prudential and Regulatory Purposes

6-7 September 2010, Vienna

17 participants from central banks and financial regulators from the REPARIS countries attended the workshop, which was moderated by Pascal Frerejacque from the CFRR.

IFRS for Prudential and Regulatory Purposes, 6-7 September 2010

Summary


Objectives

The workshop's main objectives were:

  • to bring participants up to date with the latest developments in the process of drawing up a new international financial reporting standard (IFRS9) for financial instruments;
  • to illustrate how IFRS deals with the issue of credit losses and to apply the knowledge learned through case studies drawing on financial statements produced under IFRS;
  • to outline the current state of proposals to modify the international rules governing the prudential regulation of banks (the "Basel III" rules); and
  • to discuss what the future program of work for the group should be.

Description

17 participants from central banks and financial regulators from the REPARIS countries attended the workshop, which was moderated by Pascal Frerejacque from the CFRR.

At the IFRS Workshop in ViennaDuring the first day of the workshop, Joachim Wassmann, from the Bundesbank, the German Central Bank, outlined the current state of development of the new financial reporting standard (IFRS9) on financial instruments. He presented the principles of how financial assets and (provisionally – this part of the standard has not been finally agreed) liabilities would be valued under IFRS9 – either at amortized cost or fair value, with the choice between the two "baskets" depending primarily on the entity's business model. Mr Wassmann highlighted how the treatment under IFRS9 differed from the model propsoed by the US Financial Accounting Standards Board (FASB), which would generally allow less scope for the amortized cost approach and would also permit less flexibility in reclassifying assets between the two baskets. He also outlined the remaining elements of IFRS9 on impairment, hedge accounting and the offsetting (netting) of assets and liabilities, which were all at earlier stages of development.

Henning Göbel, chief accountant at the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin - the German integrated financial supervisor) gave a presentation on the implications of IFRS9 for the provisioning of loan losses under IFRS. He emphasized that a trigger event was required to change the classification of a loan and that the level of provisioning should be based on a calculation of the likely losses. Mr Göbel's contribution was complemented by a presentation from Marija Efremova, of the Central Bank of Macedonia, on how the loan loss provisions of IAS39 (the forerunner of IFRS9) were implemented in practice in Macedonia. Participants then analyzed two case studies from Macedonia intended to illustrate the discussion of the principles of loan loss provisioning.

At the IFRS Workshop in ViennaThe presentations on the seminar's second day looked at recent developments in prudential regulation. Mr Göbel gave a presentation on the "stress tests" on the major European banks which had been published in mid-2010. Although nearly all the major European banks passed the tests, Mr Göbel emphasized the narrow nature of the exercise, which had been limited to evaluating the effects of an adverse economic scenario on the banks' capital adequacy. He stressed the importance of taking a broader view than this; in particular, regulators needed to look at the robustness of banks' liquidity positions. In his second presentation, Mr Wassmann outlined the current state of play on Basel III – the new prudential rules being drawn up by the Basel Committee on Banking Supervision (BCBS). Although not yet finalized, these were likely to tighten up the definition of Tier 1 capital, restricting it to be predominantly common equity and retained earnings, and to increase the required capital ratios. The BCBS was also considering measures to reduce procyclicality by allowing forward-looking provisioning for loan losses (though this might conflict with accounting standards) and by raising capital requirements during periods of rapid credit growth. In addition, it looked likely that the BCBS would propose an overall limit on leverage as well as regulations to improve banks' short- and medium-term liquidity positions.

Pascal Frèrejacque, Senior Operations Officer at the CFRR, led a discussion on the future program of work. Participants requested more case clinics and experience sharing about implementation of IFRS in REPARIS countries, updates on the IASB management commentary project, and updates on the other IFRS projects of interest to the banking sector. Mr Frèrejacque proposed that the IFRS Seminar Series be transformed into a Regulatory Group discussing IFRS implementation issues. This change would give participants in the Group a more active role in the design of the agenda and materials for future events. The Group would also need to cover topics of relevance to Insurance Supervisors as well as Banking Supervisors.

Results

Comments from participants indicate that they appreciated the practical aspects of the seminar. In particular, they found the presentation on Macedonia's approach to provisioning for loan losses useful, as it dealt directly with issues that financial supervisors in all the REPARIS countries were facing. This element of learning from regional peers will be developed further in future REPARIS events.

Videos


Videos of Speakers' Presentations

Full length videos of presentations held at the workshop.

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