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(EMAILWIRE.COM, December 08, 2012 ) Manchester, U.K -- The United Kingdom's largest institutions, which include Barclays, HSBC, Lloyds Banking Group, and Royal Bank of Scotland, are all requiring extra capital to meet the new accounting standards recently passed down.
The requirement of fresh fundraising is causing concern for investors within the industry that is already suffering heavily after allegations of energy price fixing. That energy-fixing scandal is said to be £11 billion in provisions for PPI mis-selling.
The new requirements are the result of a new international rule set regarding when when banks suffer losses for loans on their balance.
Under the current rules, all losses are taken once they occur; however, the new proposal would shift expected losses on loans, with full lifetime losses booked once the loan has begun deterioration by any 'meaningful' amount.
The proposal's active implication is designed to assure investors with a clearer picture of quality of bank's loan book. The move essentially helps investors feel as they have a better understanding of where a bank stands, and is structured to help avoid a second financial crisis brought on by banks.
A report by corporate governance watchdog group PIRC estimated that the United Kingdom's five largest banks require an £27 billion to cover the losses from the 2011 crisis. The banks have stated that the number is not correct.
The IASB and the United State's Financial Account Standards Board had previously been attempting to come up with global expected-loss rule sets, but was unable to do so in congruence, and subsequently parted ways. U.S. Banks are to be forced to take expected loss on a loan. Critics stated that this allows banks to engage in profit management. "The point is that if you are booking higher allowances at the start when expectations are most uncertain, there is more room for exploitation," said an industry source.
The IASB is to publish a rule set within the first quarter, followed by a 120-day consultation process. The rules will be placed by the end of the following year, and banks (as well as auditors) will be given 18 months to set systems into place. Rules effectively will not be enforced until Mid-2015.
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