Sir, In addition to those described by Patrick Jenkins in \u201cWhy is it taking so long for Europe\u2019s banks to recover?\u201d (Inside Business, November 10), another reason for the relative weakness of European banks is the limitations placed on them by international financial reporting standards. Since the 1970s, US GAAP has required banks to earlier recognise loan losses, when they are in \u201cprobable\u201d default. In contrast, IFRS used by European banks only require recognition when the loan is already in default.<\/p>\n
This may not seem significant, but the implications are far-reaching. In the years following the 2008 crash, US banks were much faster to clean out their loan books of non-performing loans, in part as a result of more rigorous and forward-looking accounting requirements. Needless to say, many European banks remain weighed down by toxic assets on their balance sheets despite the fact that a more forward-looking model would likely speed up their return to health.<\/p>\n
The debate continues about whether the International Accounting Standards Board\u2019s \u201cthree stage\u201d approach to impairment is the most sensible, given the risk that the \u201clumpy\u201d nature of losses will render the 12-month approach inadequate and that auditors may find it difficult to assess when a \u201csignificant increase in credit risk\u201d has taken place.<\/p>\n
However, when considering why European banks are struggling, we should acknowledge the negative effects of restrictive accounting standards that prevent banks from cleaning themselves up.<\/p>\n
Syed Kamall MEP
\nConservative, London, UK<\/p>\n
Sven Giegold MEP
\nGreens, D\u00fcsseldorf\/Germany<\/p>\n","protected":false},"excerpt":{"rendered":"
Sir, In addition to those described by Patrick Jenkins in \u201cWhy is it taking so long for Europe\u2019s banks to recover?\u201d (Inside Business, November 10), another reason for the relative weakness of European banks is the limitations placed on them by international financial reporting standards. Since the 1970s, US GAAP has required banks to earlier […]<\/p>\n","protected":false},"author":8,"featured_media":35938,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[],"tags":[],"class_list":["post-38786","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry"],"acf":[],"yoast_head":"\n