IFRS 9 AND THE INTERACTION WITH BASEL III REGULATION PILLARS

Elena Mitoi (), Luminita Achim (), Madalin Despa () and Codrut Turlea ()
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Elena Mitoi: Doctoral School in Accounting, Faculty of Accounting and Management Information Systems, Bucharest University of Economic Studies, Bucharest, Romania
Luminita Achim: Doctoral School in Accounting, Faculty of Accounting and Management Information Systems, Bucharest University of Economic Studies, Bucharest, Romania
Madalin Despa: Doctoral School in Accounting, Faculty of Accounting and Management Information Systems, Bucharest University of Economic Studies, Bucharest, Romania
Codrut Turlea: Doctoral School in Accounting, Faculty of Accounting and Management Information Systems, Bucharest University of Economic Studies, Bucharest, Romania

Annals of Faculty of Economics, 2020, vol. 1, issue 2, 213-222

Abstract: IFRS 9, standard focusing on the accounting for financial instruments, once implemented, led to significant improvements in the world of accounting. The transition from the old standard (IAS 39) in order to apply IFRS 9 has been a major challenge for the bank system, due the fact that the new standard involves other criteria for classifying and measuring the financial instruments. A novelty brought by this standard and presented in the article refers to the introduction of Expected Credit Loss, another approach for recognizing credit losses. This new approch must be applied by institutions according with the three stages provided by IFRS 9. IFRS 9 has a strong impact on risk management and the banking business model. In addition to IFRS 9, Basel III, also, have a major importance in the activity carried out in the banking sector. Basel framework is applied on a consolidated basis to all internationally active banks, being the best way to preserve the integrity of capital in subsidiary banks by eliminating double-gearing. Basel III was created to strengthen the requirements included in the Basel II standard on minimum capital ratios of banks by increasing bank liquidity and reducing bank leverage. The main objective pursued by the Basel III agreement is to strengthen the security of the banking sector. At the level of the European Union an important role in the application of the new framework is played by the European Banking Authority. The paper aims to present, through a deductive approach, the new Expected Credit Loss modell and to describe the interaction between accounting standards and supervisory expectations, namely the interaction between IFRS 9 and the three pillars of the Basel III regulation: the minimum regulatory capital requirements (Pillar 1), supervisory review and evaluations process (Pillar 2) and market discipline (Pillar 3). The last part of this article is focused on impairment models and financial stability, treated in the light of the new accounting standard.

Keywords: IFRS 9; Basel III regulation; pillars of Basel III regulation; Expected Credit Loss; credit risk; financial institutions (search for similar items in EconPapers)
JEL-codes: M21 M41 (search for similar items in EconPapers)
Date: 2020
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