Global accounting body consults on new model for assessing bank risks

By Lawrence White

LONDON, Dec 3 (Reuters) - Banks could give investors a clearer view on how they manage risks, such as those associated with changing interest rates, under a new model proposed by a global accounting rule-setter.

The International Accounting Standards Board on Wednesday launched a consultation on a new risk mitigation accounting model, which it said comes after years of dialogue between the IASB and banks that want more flexibility in how their risk management strategies are reflected in accounts.

The consultation is open until July 31, 2026, and could involve changes to the IFRS 9 Financial Instruments and IFRS 7 disclosure  rules.

"Our proposed risk mitigation accounting model aims to bring accounting and risk management closer together to enhance internal efficiency and strengthen communication between financial institutions and their stakeholders," said Andreas Barckow, chair of the IASB.

The model will attempt to replace a transaction-driven view of how banks manage interest rate risks, which rarely gives the overall picture, with one that provides investors with a more complete picture of their exposures, Barckow told Reuters.

"We want to better understand how banks are managing their risk, and can we use our toolbox of accounting standards to faithfully portray what they are doing," he said.

The new model will be subject to a 240-day consultation period and even then could be two years or more away from implementation, he said, meaning investors will not see any immediate change.

The proposals will also be opt-in for banks, and require buy-in from regulators and banking authorities in individual jurisdictions. Barckow said that conversations with such bodies had left him confident the new standards would be welcomed.

Banks in the United States, Britain and Europe have been pushing for the ability to take more risks, arguing that reforms made after the 2007-2009 global financial crisis, aimed at ensuring they maintain adequate capital levels, are now hindering growth.

(Reporting by Lawrence White in London, Editing by Matthew Lewis)