Global bank watchdogs in accounting rule talks to limit loan losses

Global regulators are discussing whether to ease an accounting rule to avoid banks facing huge provisions for loans to companies hit by the coronavirus crisis, a source involved in the talks said. The Basel Committee of banking regulators from the world's main financial centres is holding a teleconference on Friday to discuss the rule known as IFRS 9, which is mandatory in the 27 state European Union, Britain and more 100 other countries.

"Let's agree to kind of freeze the situation," the source said of the talks. "There is greater concern about potential losses that banks may incur in relation to businesses." The Basel Committee declined to comment.

The rule was called for by G20 leaders in the aftermath of the global financial crisis a decade ago. This highlighted how late banks provisioned for souring loans, typically at the point of default, leaving taxpayers to bail out lenders. Under the International Accounting Standards Board rule, banks have to make some provisioning for expected losses on the first day of the loan. The United States, which has its own standard setter, insists on full provisioning from the start.

The Bank of England, a Basel Committee member, sought on Friday to clarify the application of IFRS 9 during the coronavirus epidemic, saying that its rapid onset meant it was very challenging to make forecasts about expected losses. If any forecasts are made, they should reflect the temporary nature of the shock and fully take into account the relief measures that Britain's government has taken to help the economy, such as payment holidays for mortgages.

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