The effectiveness of IFRS 9 transitional provisions in limiting the potential impact of COVID-19 on banks

Martin Neisen () and Hermann Schulte-Mattler ()
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Martin Neisen: PricewaterhouseCoopers (PwC)
Hermann Schulte-Mattler: FH Dortmund - University of Applied Sciences and Arts

Journal of Banking Regulation, 2021, vol. 22, issue 4, No 6, 342-351

Abstract: Abstract The purpose of this paper is to assess the effectiveness of the transitional provisions for the impact of International Financial Reporting Standard 9 (IFRS 9) as a supervisory tool to strengthen a bank’s capital base. The new IFRS 9 provisions are a significant banking supervisory measure of the so-called Capital Requirements Regulation (CRR) Quick Fix to mitigate possible adverse effects of the COVID-19 pandemic on banks. With the discharge rules, the supervisor aims to strengthen the banks’ regulatory capital in order to ensure the supply of credit to households and companies at all times. Based on the published disclosure reports of 107 significant European banks at the reporting dates end 2019 and June 2020, our study analysed how many banks already apply the transition rules, whether there are geographical focusses and to what extent banks use the new CRR Quick Fix adjustments. To the best of our knowledge, this paper is the first empirical analysis of the extent to which European banks use the original IFRS 9 transitional arrangements and COVID-19 extension and what effects its use has on their common equity Tier 1 (CET1) capital. The results are of interest to regulators, bank managers and analysts alike, as they fundamentally demonstrate the effectiveness of this particular regulatory tool.

Keywords: Banking regulation; Capital requirements regulation (CRR); CET1 capital; Standardised approach to credit risk (CSA); CRR Quick Fix; Internal rating-based approach (IRBA) (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 G38 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1057/s41261-021-00151-7

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