What actually is Basel’s contribution to the new IASB impairment model?

Just returning from a talk by Sir David Tweedie. Funny as always and sharp, he discussed a short history on accounting standard setting. He spared few parties, with France taking most of his flak. Perhaps Sir David has a point. Accounting standard setting would be different if France was not involved.

But why blame France? In 2008 I really read an early-term concept report of René Ricol to Sarkozy to import Wall Street ideas to make France’s financial sector more transparent. But then Lehman came along, and transparency left Paris.

What about the Basel Committee’s involvement?

To date, nothing has been achieved on improving the accounting impairment model. The current incurred loss model recognises losses when they occur, but that is too late. The world needs a more forward-looking loss recognition model. Everyone agreed on that in 2009. But, as IASB chair Hans Hoogervorst noticed in early 2011, speaking in Brussels, banks will really not like this — as losses significantly affect bank capital.

Progress thus will take ages – banks resist.

This begs the following question: with banks resisting, and so little progress on an issue where the G20 really want to see progress, Basel should have stepped in. Basel developed new rules on solvency and capital, on liquidity, leverage, and bonuses.

The accounting for losses should be doable, but this quote from the Committee’s Chair Ingves  dated January 5 this year illustrates my point:

“While the boards have made significant progress in developing expected loss models, we also remain concerned as to whether the eventual standards will result in the early and timely build-up of sufficient levels of credit allowances.”

This is fascinating. What process is going on in Basel that forces Ingves to such a weird comment?

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