Bank of England weighs in on loss provisioning
The Bank of England's recent Financial Stability Report touches on loss provisioning, currently the subject of much debate among IFRS experts
BANK LOSSES are again under the microscope after Bank of England Governor Mervyn King (pictured) used the Financial Stability Report to warn against inadequate provisioning.
The bi-annual report identifies risks and recommends measures to build resilience. It called on banks to improve disclosure of exposure to poor loans, such as those given to Eurozone countries struggling with sovereign debt, and said banks should build capital when earnings are strong “so that credit availability is not constrained during periods of stress”.
International Financial Reporting Standards have been blamed by some for not ensuring banks have adequate provisioning for loan losses, as only incurred rather than expected losses are accounted for.
The Telegraph, a long-time critic of IFRS, has seized on the report as evidence that the Bank of England agrees the global standards are wrong on loss provisioning, although King himself makes no reference to them.