Will new regulations be added to bank capital? IASB Seeks Comments on a New Risk Control Assessment Model to More Truly Reflect Risk Exposure

The Zhitong Finance App has learned that the International Accounting Standards Board (IASB) is seeking comments on a new bank risk assessment model. The agency launched an advisory activity on Wednesday on a new risk mitigation accounting model. The board said it was launched after years of communication and negotiations between the IASB and banks that wanted to reflect their risk management strategies more flexibly in financial statements. According to the new model, banks can give investors a better understanding of their risk management situation, such as risks associated with changes in interest rates.

This consultation will continue until July 31, 2026, with possible revisions to IFRS 9 - Financial Instruments and IFRS 7 - Disclosure Rules.

IASB Chairman Andreas Barkov said, “Our proposed risk mitigation accounting model aims to more closely integrate accounting work with risk management to improve internal efficiency and enhance communication between financial institutions and their stakeholders.”

Barkov said that the new model will replace the old transaction-oriented accounting methods used by banks to manage interest rate risk, and the old model cannot provide an overall picture of bank risk exposure. “We want a deeper understanding of how banks manage their risk and whether we can use our accounting standards tools to truly reflect how they operate,” he said.

Barkov said that the new model requires a 240-day consultation period and may take two years or more to implement, so there will be no impact in the short term. The proposals are also optional for banks and require approval from regulators and banking authorities in various jurisdictions. He said that his exchanges with these agencies convinced him that the new standards would be welcomed.

After the 2007-2009 global financial crisis, European and American banks have been striving to be able to take more risks and believe that reforms aimed at ensuring that they maintain sufficient capital levels are impeding growth.

The IASB's new model is a gradual transformation aimed at improving financial transparency and reporting quality in the banking industry. Although it will have little impact on stock prices in the short term, in the long run, it will help to better evaluate and reward banks with sophisticated risk management and high transparency, while putting market pressure on banks that do not disclose sufficient information. From a capital perspective, the IASB's new model should not cause banks to immediately change capital or immediately change the core calculation rules of the Basel Agreement. Furthermore, by optimizing accounting reports, the transparency and stability of banks' capital levels will be improved, banks will be supported for more effective capital management, and investor confidence and long-term valuation of bank stocks may be enhanced.