Accounting rules "practically impossible to implement", Barclays claims

Proposed banking rules, born out of the crisis, will be “practically impossible to implement” and encourage “boilerplate” disclosures, according to Barclays.

Barclays’ finance director Chris Lucas is the latest to voice opposition to the accounting rules, which may force banks to calculate and disclose the proportion of loans which will turn bad.

The bank wants the proposals redesigned and re-exposed citing practical challenges in implementing the model.

“Many of then proposals are too prescriptive and practically impossible to implement,” Lucas said in Barclays' submission to the International Accounting Standards Board (IASB), which is considering the proposals.

The proposals will move banks away from the current model, known as the incurred-loss model, which forces banks to record a loss if there is a “trigger” – an observable event which casts doubt on whether a loan will be honoured. A payment default is often referred to as an example.

Under the proposed rules, known as the expected-loss model, banks would reassess the health of their loan portfolios at least each year, then downgrade profits if they “expect” a loan might not be paid. All future cash flows would be calculated on day one of the loan’s life and banks’ profits would be adjusted to reflect the “expected losses”.

Barclays argues the expectations would be judgmental, complicated, and may end up increasing volatility in bank accounts.

“The sensitivity disclosures…are highly subjective, difficult to interpret, and potentially misleading, particularly when the underlying data is itself highly subjective,” Lucas said.

“It is hard to see how sensitivity disclosures could be aggregated by a large institution to provide succinct data that avoids ‘boilerplate’ disclosure.”

Last week RBS also voiced its opposition to the rules describing the proposals as “unnecessarily complex, operationally challenging and [requiring] substantial systems cost”.

The IASB proposed the new model in November, urged on by G20 leaders aiming to reform banking rules in the wake of the crisis. At the time regulators argued current accounting rules enabled banks to book profits from loans they could reasonably expect might go bad.

Banks are urging the IASB to consider alternative proposals being drawn up by the Basel Committee on Banking Supervision or the IASB’s US counterpart, the Financial Accounting Standards Boards.

Last week, Accountancy Age reported the new rules would cost the largest banks almost £40m each and require a root and branch overhaul of their systems. The aggregate cost for banks including HSBC, NatWest, RBS, Barclays, Lloyds and Santander, could be as high as £225m.

Further reading:

Proposed rules may cost largest banks £37m each

Deloitte chief speaks out on loan-loss provisions