FSB report notes progress on bank risk disclosure

The report, which looks at 40 global or domestic systemically important banks, finds that the Canadian and U.K. banks have made the most progress in adopting the EDTF’s recommendations. The report notes that adoption is further behind in countries that have more recently moved to follow the recommendations, such as China and Japan, the EDTF report notes.

Overall, the most progress over the last year has been made on implementing the recommendations that deal with summarizing encumbered and unencumbered assets, outlining plans to meet new regulatory capital ratios, and disclosing minimum capital requirements, the EDTF report says.

However, investors and analysts found “that significant opportunity remains for banks to improve credit risk disclosures,” the EDTF report says. In particular, the EDTF report notes that investors and analysts found that fewer than half of the banks provided quantitative information about counterparty credit risk from derivatives transactions, or details about the composition of the collateral held.

Separately, the FSB also published a report from the EDTF that looks at the impact of new standards for expected credit loss (ECL) approaches to bank risk disclosure. The International Accounting Standards Board (IASB) issued a new standard for dealing with credit impairment in 2014, and the U.S. Financial Accounting Standards Board (FASB) is expected to issue a new standard in the first quarter of 2016.

In anticipation of those changes, the EDTF standards report finds that, “for many banks significant changes to systems and processes may be required, which will require substantial time and resources to deliver.” It also concludes that some banks “will need to develop and enhance governance over the recognition and measurement of credit losses, particularly to develop capability to make informed judgments about the use of forward-looking information.”