EBA欧洲银行-2009-09-01-Final-28CEBS-CL-Credit-risk-in-liability-measurement29_5页_153kb

CEBS Comments on Credit Risk in Liability Measurement

Core Content

The Committee of European Banking Supervisors (CEBS) has provided feedback on the International Accounting Standards Board (IASB) Discussion Paper titled "Credit Risk in Liability Measurement". CEBS is composed of senior representatives from banking supervisory authorities and central banks across the European Union, and its comments are focused on improving financial reporting and disclosure standards in the banking and financial sector.

CEBS acknowledges the importance of accounting for Own Credit Risk (OCR) at initial recognition of financial liabilities, as it reflects the market's consideration of credit risk in determining the transaction price. However, the committee raises concerns about the decision-usefulness of incorporating OCR changes in subsequent measurements.

Main Views

1. Initial Recognition of Credit Risk

• CEBS supports incorporating OCR at initial recognition for financial liabilities.
• For non-financial liabilities, OCR should be considered if they are measured on a market consistent basis.
• However, in cases where there is limited market depth (e.g., environmental decommissioning liabilities), a market consistent basis may not be appropriate or meaningful.

2. Subsequent Measurement of Credit Risk

• CEBS does not support recognising changes in OCR in profit or loss for subsequent measurement.
• The committee believes that such recognition can be misleading, as gains may occur when creditworthiness deteriorates and losses when it improves.
• Furthermore, these gains are often not realisable and may distort the capital structure representation, particularly for deposits and debt holders.
• CEBS advocates for limiting the use of fair value for liabilities unless it is essential to provide useful and relevant information.

3. Regulatory Considerations

• CEBS has implemented a prudential filter to exclude OCR-related gains or losses from regulatory capital measures.
• This is in line with Article 64.4 of Directive 2006/48/EC, which aims to prevent undue volatility in regulatory capital and ensure that gains are available for immediate use in covering risks and losses.

4. Disclosure Requirements

• CEBS recommends enhancing disclosure requirements in IFRS 7, particularly for liabilities measured at fair value.
• It suggests that disclosures should cover:
  • All liabilities measured at fair value.
  • The methodology used to measure own credit risk.
  • The sources of inputs used in the valuation process.
• CEBS highlights the need to clarify what "own credit risk" includes, noting that the IASB assumes it is the spread over the risk-free rate, whereas IFRS 7 refers to the spread over a benchmark interest rate.

Key Information

• OCR at initial recognition: CEBS accepts the inclusion of OCR in the transaction price, as it reflects market considerations.
• OCR in subsequent measurement: CEBS does not support it due to potential misleading effects and realisation concerns.
• Prudential filter: Used to exclude OCR-related gains from regulatory capital.
• Disclosure improvements: CEBS advocates for more detailed disclosure requirements to ensure transparency and comparability.

Alternative Approaches

• CEBS does not prefer any of the three categories of approaches described in the paper.
• It is critical of the substitution of risk-free rates, as it may ignore transaction facts and create undesirable incentives.
• It finds the "frozen spread" approach in Illustration 4 attractive, but questions its suitability for liabilities classified as held for trading.

Conclusion

CEBS emphasizes the need for transparent and comparable financial statements that do not distort the capital structure or market discipline. While OCR should be considered at initial recognition, it is not appropriate for subsequent measurement. The committee calls for enhanced disclosures to ensure that users of financial statements can understand the methodology and inputs used in OCR valuation.