EBA欧洲银行-2009-09-01-28CL-IASB-Information-Request-Expected-Loss-Model29_6页_164kb

CEBS Comments on the Expected Cash Flow Model

Core Content

The Committee of European Banking Supervisors (CEBS) has provided feedback on the International Accounting Standards Board (IASB)'s Request for Information regarding the Expected Cash Flow Model for financial assets. CEBS, representing banking supervisory authorities and central banks across the European Union, supports the move toward a more forward-looking impairment model that better reflects the economic reality of credit risk.

Main Views

CEBS believes that the incurred loss model currently in use is too restrictive and not prudent enough. They argue that it does not align with how banks typically manage credit risk, as credit risk provisions are usually recognized at a later stage in the credit lifecycle. Therefore, they advocate for an expected loss model that allows for earlier recognition of credit risk, which would reduce the cyclical nature of financial reporting.

CEBS emphasizes that the expected cash flow model should be principles-based, with clear and sufficient application guidance to ensure consistent and reliable implementation across all types of financial institutions and instruments. They also highlight the importance of transitional provisions to facilitate comparison over time and understanding of model variations.

Key Information

1. Clarity of the Approach

CEBS identifies four areas that may require further clarification:

• Estimation methods: The approach should clarify whether it uses a point in time or through the cycle method for estimating expected cash flows.
• Presentation: Users should be able to identify and assess an entity's estimates of expected losses, along with historical loss experience.
• Portfolio determination: Guidance should be provided on how to define portfolios for statistical purposes and how they relate to individual loan assessments.
• Special cases: The treatment of short-term revolving credit facilities, renegotiated financial assets, and variable rate instruments should be addressed.

2. Operational Feasibility

CEBS acknowledges that the implementation of the expected cash flow model may pose operational challenges, particularly in estimating expected cash flows and their timing. However, they believe that the model is operationally feasible, as it uses mechanisms similar to those used in amortised cost calculations. Banks may already have internal credit risk assessment systems that can be adapted to this model, especially those using Basel II advanced internal rating-based approaches.

For banks using the standardised approach, the transition could be more difficult due to a lack of expected loss-based systems. CEBS encourages the IASB to collaborate with industry and regulators to understand these challenges and develop simplifications where necessary.

3. Application to Variable Rate Instruments

CEBS supports the use of high-quality accounting standards that provide investors with transparent information on an entity's financial situation. They advocate for an impairment approach for variable rate instruments that is consistent with that used for fixed rate instruments.

Based on a cost-benefit and practicality analysis, CEBS favours:

• Approach A for amortising upfront costs.
• Approach B for the impairment of variable rate instruments.

4. Application to Specific Assets in a Portfolio

CEBS believes that a portfolio approach should be maintained throughout the lifetime of the financial assets, even if a specific asset within the portfolio is later identified as impaired. They argue that the individual impairment is a crystallisation of the expected losses already estimated for the portfolio.

They also stress the importance of quantitative and qualitative disclosures to help investors distinguish between expected and actual losses, and understand the methods and assumptions used in the estimation process.

5. Simplifications

CEBS is not opposed to simplifications, but they must not compromise the quality of information. Simplifications should be limited to areas where there is a real operational concern, such as IT system implementation. These simplifications should be consistent with or approximate to the expected cash flow model.

They also suggest that high-quality disclosure requirements should be in place to provide timely information on accounting choices and simplifications, including comparisons between actual and expected losses over different time horizons.

Conclusion

CEBS supports the IASB's initiative to develop an expected cash flow model for financial assets. They emphasize the importance of principles-based guidance, operational feasibility, and transparent disclosure. CEBS encourages the IASB to work closely with the industry and conduct field testing and impact assessments to ensure a robust and consistent implementation of the new model.