Against the backdrop of recent European bank mergers, it is worthwhile examining the effects of acquisitions on regulatory capital. This is interesting because many European banks trade below book value. Normally, firms that acquire other firms pay a premium over book value to purchase the target firm. This premium is called goodwill. However, with the… Read More Badwill accounting
“He is the problem.” the investment banker said on a sunny afternoon some weeks ago over a plate of Shed 5 fish & chips. I agreed, it’s the governance of the process, or the lack thereof, that puts the capital plans of the Reserve Bank at risk. The investment banker had spent the entire Christmas… Read More The Governance of the Reserve Bank Capital Plans
Just the other day, the Dutch government announced plans to end the favorable tax treatment of CoCo securities. From 1 January 2019 onward, the tax deductibility of the coupon paid on Additional Tier 1 capital instruments will end.  See a Google translation of the announcement here. Such a change in tax treatment likely constitutes a Tax… Read More European Commission slaps Dutch government on the wrist: the end of AT1 coupon tax deductibility?
In a couple of weeks’ time, at the FEBS conference in Rome, Stefan Kerbl and Zsofia Döme from the Austrian national bank (OENB), will present a paper on the comparability of Basel risk weights in the EU banking sector. The short story: according to Stefan and Zsofia there are significant differences in the ways European… Read More How questionable is the comparability of Basel risk weights in the EU banking sector?
This week the EC presented concrete steps to tackle non-performing loans, see this page. Ouch One and Ouch Two Two reasons why this is an interesting proposal. First, it forces banks to deduct any provisioning shortfalls directly from Common Equity Tier 1. Ouch! Second, the proposal amends the CRR, which is a Regulation. And we… Read More The European Commission’s proposal to accelerate the reduction of non-performing loans
In March 2009, the International Accounting Standards Board started an ambitious plan to make accounting for banks easier to understand. In no less than 97 pages, the IABS laid out its plan to reduce complexity in the reporting of financial instruments.* At the time, the IASB did the right thing. The standard in force was too complex.… Read More No battle plan survives first contact with the enemy
Last week, the UK Prudential Regulation Authority (PRA) published a consultation paper on group policy and double leverage, in which the PRA wants to limit the risks arising from excessive double leverage. The consultation paper and the associated speech by Sam Woods received some coverage, though the ECM addendum on Non-Performing Loans probably attracted more… Read More Double leverage, a regulatory tribulation
The EBA just published the results of the 2016 transparency exercise. Yay! The EBA decided to deliver on its promise to present more detailed data of individual banks. (I hope the EBA now forgives me for posting a critical note on their bank disclosure plans earlier this year.) I toyed a bit with the data… Read More Sovereign Holdings by EU Banks
It spooked the markets for good reasons, but the leaked EC document on the merger of TLAC and MREL did not receive the attention that it deserves. Yes, Reuters reported on the leaked Information Note from the Commission Services for the European Commission Expert Group on Banking, Payments and Insurance. However I am not sure… Read More Is the European Commission phasing out MREL?
Following up on my post of some days ago on Europe’s efforts to harmonise bank capital, it dawned upon me that this harmonisation plan will probably not go well. Today, Danièle Nouy confirmed there will be a consultation on ECB’s efforts to harmonise Options and National Discretions (ONDs) in the CRR. Consultation, consultation, consultation. Mind… Read More Good luck harmonising European bank capital!