Investors attack IFRS for its role in credit crisis
Fund managers say the lack of ability to provision for losses weakened banks
A group of London institutional investors has put pen to paper in a scathing
criticism of International Financial Reporting Standards.
Their analysis, seen by The Telegraph, concludes that under IFRS, banks such
as HBOS, Bradford and Bingley and Northern Rock were able to trade while
insolvent last year.
At the heart of the critique is the way banks provision for losses under
IFRS. Before international standards came in, banks estimated losses for future
years and used forward provisioning to smooth their results year-on-year.
Under IFRS, banks aren’t able to make a provision unless a borrower has
actually defaulted. Banks can no longer make a risk assessment on all loans
before they hit trouble.