My memory’s not perfect, I admit, but isn’t this rather a return to the old days?
The International Accounting Standards Board (IASB), whose rules are followed by all the UK’s major lenders, has set out a series of rule changes that will require banks to recognise losses far earlier.
Under the current rules, banks are only required to account for a loss when it occurs or if they believe they could exceed a certain threshold. However, the new code would force lenders to recognise upfront all the losses they could have to take against a loan over its life as soon as their is evidence of any deterioration in its value.
The change is expected to answer criticisms that the current rules gives banks too much leeway on when and how much to take in provisions against their assets.
As I say, memory’s not perfect. But wasn’t this how things used to be? Banks would make provisions for what losses they thought might happen in the future? Almost to hte point where they would write down some standard percentage of all new loans just because some would undoubtedly go sour?
And this might indeed be good in a prudential sense. But, again faulty memory, wasn’t the reason this was stopped because it was just too easy for a bank to manipulate its results by doing so? Oh, and, obviously, those loss reserves come off the tax bill too.
My assumption therefore would be that these new rules would mean a fall in hte tax take plus a certain greater regularity in bank results as they push in and pull out such reserves to manipulate earnings.
Maybe that’s a good idea and maybe its not but it will be interesting to see the reaction of those who bleat about banks “paying their way” won’t it?