Banks seek capital relief for ECL reserves

Capital rules fail to recognise risk-reducing effect of loss reserves, lenders say

Banks are pressing regulators to ease capital rules to reflect the risk-reducing effect of higher loan loss reserves under new accounting standards.

According to an impact study by the European Banking Authority, IFRS 9 will force banks to increase loan loss provisions by as much as 30% and could cut Common Equity Tier 1 (CET1) ratios by up to 75 basis points. The equivalent US accounting standard – the Current Expected Credit Loss (Cecl) rule – could pack an even bigger punch.

As a result, le