REGULATION:THE EUROPEAN Commission will propose easing the obligation on banks to value riskier assets at current low prices as part of efforts to stabilise financial markets, an EU document seen by Reutersyesterday said.
EU finance ministers called for the measure on Tuesday to be introduced by the end of this month so that EU-listed banks can apply it to their third quarter results.
The United States has eased the impact of its equivalent fair value or mark-to-market rule for banks and Brussels is keen that their European rivals have the same advantage.
"The commission now proposes to amend the implementing regulation which endorsed IAS 39," said the document. The EU accounting rule IAS 39 forbids banks from reclassifying or moving riskier assets such as derivatives from their trading book to their bank book.
Assets on trading books must be priced at fair value or the current market price but some derivatives have slumped in value or even become untradeable in the credit crunch.
Assets parked on the bank book can be priced nearer their historical value or the price at which they were bought.
Banks shifting assets to their bank book will not have to value them at fire-sale prices.
This could staunch huge writedowns that forced banks to top up capital at a time when money markets are frozen and investors are running for the exits.
Accountants say the reform would paint a false picture of a bank's financial health and some banks may even think twice for fear of damaging their reputations further with investors.
Underlying problems such as banks taking too little care in what they buy and strong incentives to take risks in order to get year-end bonuses would not be tackled, accountants say.
Reporting rules used in Europe are drawn up by the International Accounting Standards Board, an independent, non-EU body whose standards are used in more than 100 countries.
It meets next week to see how its rules could be aligned with steps taken in the United States but the commissioner in charge of internal market and services, Charlie McCreevy, is not relying on the standard setter to deliver. "In view of the urgency of the situation, the commission cannot wait for the decision of the IASB," the document said.
"The commission needs to be already prepared to adopt its own measure should the IASB's remedy ultimately prove to be insufficient," it added.
Approval from EU states and the European Parliament was expected to follow shortly.
The EU's executive body yesterday rejected demands for its financial services commissioner to be removed for failing to tackle the worst market crisis in 80 years. Martin Schulz, floor leader of the EU assemblys Socialist bloc, has asked commission president José Manuel Barroso to move Mr McCreevy, to another portfolio. Mr Schulz also wants Mr McCreevy and EU competition commissioner Neelie Kroes removed from a financial market crisis panel which Mr Barroso is setting up inside the commission. A commission spokeswoman rejected the criticism.
(Reuters)
