Following lengthy debate, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have issued two separate “expected loss” models, which are currently being deliberated on. There is one significant change: compared with the current “incurred loss” model, both opt for earlier recording of losses and accept considering estimated or expected losses. To calculate them, they include reasonable forecasts of economic conditions and future events. The discrepancy does not therefore lie in the amount of the estimated losses, but in the time at which they are recognised. The IASB proposal defers recognition of a portion of the losses to the time at which a significant impairment in the credit quality of the assets becomes apparent, whereas the FASB proposal limits banks’ discretionality, obliging them to recognise all the expected losses that may reasonably be estimated. At the Banco de España, we understand that, in principle, the latter proposal responds more closely to the requirement of the G20, which has expressed concern about the procyclical nature of the current regulations. Conclusions Allow me to conclude by highlighting the unprecedented effort being made in international coordination of financial regulations and the role of the Financial Stability Board and the Basel Committee. Throughout the crisis there have been signs of a re-nationalisation of financial markets, and some supervisors have, at specific times, adopted protectionist measures entailing little or no coordination with other supervisors. Admittedly, though, the bulk of the regulatory initiatives have come from the reinforced international cooperation led by the FSB.
The draft Directive establishes an array of instruments with which to tackle banking crises in three phases or stages: in the preventive stage, in the case of early intervention and in the case of resolution. In the preventive phase, banks must draw up recovery plans in the event that their situation should significantly worsen. The authorities will, in some cases, be empowered to appoint managers at banks. The principal resolution measures would be the sale of part of the business; the establishment of bridge banks for the temporary transfer of healthy assets to a bank controlled by the public sector; the segregation of assets through the transfer of impaired assets to a management vehicle; and measures that impose losses on shareholders and uninsured creditors, known as a bail-in as opposed to a bail-out, which involves or usually involves the assumption of losses by the public sector. The bail-in tool will allow the resolution authorities to cancel or convert into capital the entitlements of the shareholders and creditors of banks that are insolvent or close to insolvency. Under the decision by Ecofín, the deposits of individuals and of small and medium-sized enterprises, along with liabilities to the European Investment Bank, will have preference over uninsured creditors and over the deposits of large corporations. The Deposit Guarantee Fund will at all times make good any guaranteed deposits, i.e. those of less than € which will have greater seniority or preference over other deposits. In any event, the bail-in will exclude, inter alia, insured deposits, i.e.