Some of the rules introduced to protect banks after the 2008 financial crisis are aging better than others in the 2020 one. European regulators are working furiously with the region’s banks to keep its financial system ticking over as Western economies are hit by the coronavirus shutdown. The old regulations allowed banks to delay write-downs until a borrower failed to pay, which in 2008 led to uncertainty about the true state of banks’ loan books. Prudential regulators are also concerned, and while they can’t change the accounting rules, they can control their assessments of banks’ financial stability and capital requirements. The new accounting standard was designed to give an updated view of credit risk in a crisis.
Source: Wall Street Journal March 25, 2020 10:37 UTC