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ESRB publishes a report on the financial stability implications of IFRS 9

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Jul 17, 2017

On July 17, 2017, the European Systemic Risk Board (ESRB) published a report on the financial stability im­pli­ca­tions of IFRS 9 'Financial In­stru­ments'. The ESRB’s work on this topic was requested by the European Par­lia­ment in January 2016.

The analysis in the report entitled, Financial stability im­pli­ca­tions of IFRS 9, focuses on two aspects: (i) IFRS 9 and fair value accounting for the mea­sure­ment of financial assets; (ii) the new expected credit loss paradigm

The report notes that the ESRB concludes that IFRS 9 rep­re­sents a major im­prove­ment in com­par­i­son with IAS 39 and is expected to bring sub­stan­tial benefits from a financial stability per­spec­tive. Together with the greater clarity and certainty as­so­ci­ated with its prin­ci­ples-based approach to the clas­si­fi­ca­tion and mea­sure­ment of financial in­stru­ments, the earlier and fuller recog­ni­tion of im­pair­ment losses under the new expected credit losses model is expected to have positive effects on financial stability.

The ESRB report is ac­com­pa­nied by an oc­ca­sional paper entitled, Assessing the cyclical im­pli­ca­tions of IFRS 9 – a recursive model. This paper describes a model for assessing different ap­proaches to the accounting of credit im­pair­ment losses. In par­tic­u­lar, it compares the impact of a crisis on banks assuming four such different ap­proaches, including the current approach in IAS 39 (incurred losses) and the solutions adopted under IFRS 9 and in the United States re­spec­tively.

For further information, refer to the press release on the ESRB’s website.

 

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