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Credit Risk in Liability Measurement

Date recorded:

The Board discussed the feedback from constituents on this session. No decisions were made.

The main message from the constituents can be summarised as follows: Own credit risk should be included on initial recognition of financial liabilities, initial recognition of non-financial liabilities measured at fair value, and in cases when initial consideration is exchanged. On the other hand, on subsequent measurement own credit risk shall be included only when financial or non-financial liabilities are measured at fair value. The responses did not elaborate on the difference between measurement of credit risk via rating or credit spread.

Some constituents proposed a new measurement category, fair value adjusted for changes in own credit risk. Constituents observed that for a Level 1 instrument (observable market price), own credit risk was hard to extract, and for other instruments, it might be very difficult to be estimated.

The staff noted to the Board that many constituents stressed interaction between this analysis and conclusions reached (or to be considered) in the Classification and Measurement phase of the Financial Instruments project.

The staff will provide further analysis to the Board on October Board meeting, when the Board would be asked for direction on this project.

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