How Do I Sign Kentucky Banking Forbearance Agreement

How do i industry sign banking kentucky forbearance agreement

hello good morning good afternoon good evening depending on where in the world you're joining us from um i'm nicholas veron at the peterson institute and it's my pleasure today to introduce this first session of the new year 2021 a year full of hope and expectation of the financial statement series at the peterson institute so um today we'll talk about the accounting and regulatory challenges of banks troubled assets so that sounds very dry and technical um i didn't put a zombie in the title because that was already our last session with reference to japan and the experience from there but obviously it's the same debate it's a debate about how to look at credit uh risk in the measurement of banking assets and how when looking at bank's balance sheets and that is one of the largest questions of the moment outside of the most urgent ones uh for this we couldn't think of a better introduction then uh having as a presentation that we will have in a few minutes from bill cohen bill cohen is uh uh currently the chair of the advisory council of the the ifrs advisory council the advisory council of the international accounting standards board which sets international financial reporting standards uh but he's got a lifetime of experience in um in issues around banking supervision so not just the accounting aspect actually uh quoting an article um a couple of years ago from myra rodriguez validares who is an observer of that scene i quote her cohen is an extremely rare professional who not only has work in banking but also knows the intricacies of being a bank examiner and has the expertise in the delicate nature of crafting the guidelines for banks which is exactly what we will be talking about uh today uh bill trained at manhattan college and fordham university where he got the mba he was an analyst at the federal reserve board bank uh a division of banking supervision and regulation for a few years in the 90s and then he joined the bank for international settlement in uh 1999 and stayed there for 20 years uh mostly at the basel committee for banking supervision where he was a member of the secretariat and the deputy secretary general and then in the last few years the secretary general where he was of course instrumental in the basel three packets which was as a major reform of basel uh standards and the capital accord following the great financial prizes um bill uh left uh uh bank for international settlement and basel committee secretariat in uh 2019 since february last year he has chaired the ifrs advisory council where he was a member before and he also is a board member at the toronto center which is a recent venture which is essentially a training center for supervision professionals from particularly from developing an emerging country also speaking today will be my peterson institute colleague adnan masaray uh adnan uh got his phd from ucla in 1994 he then joined the world bank and uh shortly afterwards imf but he also stayed in that case more than 20 years until the end of 2018 and has gone through too many positions at the imf that i would go into the detail of them but suffice to say that he has extensive experience not just with fiscal issues but with the interplay between fiscal and financial issues and especially issues of financial system fragility particularly in developing and emerging countries but also in advanced countries actually essentially when he was reviewing programs and analysis of the imf uh at what is now the spr department so a experience to uh give the counterpoint to bill's um experience at standard cell so that's um as i said um we're i'm very much looking forward to not just technical but also big picture views on how to think about bank balance sheets in the period going forward when credit rate will be very much on the agenda and uh on that note bill over to you okay thank you nicholas um thank you very much for um for inviting me here today um and it's uh it's always a pleasure to speak with you i've got a a few slides just to sort of set the stage uh oh i could even see myself which is a bit troubling um so let me start with uh just a little a level setting um and i'll start with uh stating the the blindingly obvious the um the impact of over 19 um the the unexpected the unforeseen the unprecedented shock and the financial system um it's been managed pretty well during 2020 um we're going to see another wave though coming our way uh our way um so that that's the first point uh just the terminology lomas reserves little loss visions they're not interchangeable they're not synonymous loan loss provisions they're an income statement they're made on a regular basis a periodic basis they um they maintain the loan launch reserves which is observes a balance sheet item a contra item on the balance sheet in the us um typically referred to as allowance for loan and lease losses the a triple l um so i'm going to say a few words about um about the accounting standards but um so i'll talk about the um the new standards i'll talk about supervisory guidance um and maybe a little bit about risk management the i guess my main point here is i hope you can forgive me for um i don't equate everything in life to bank regulatory capital but probably far more than i should um this is in in many ways it's it's reminiscent of of the debates and the discussions we had about setting standards for um bank regulatory capital uh yeah we've got standards and in countries we've got regulations that implement our standards but that's only a small piece of the puzzle there's supervisory guidance and oversight and most important uh there's risk management how those how those rules are are actually implemented at the bank level or at the system level uh but it's really at the bank levels that that might it might be makes uh the most difference um okay but first on the uh on the accounting standards um let me say a few very brief words about the background um the incurred loss method up until 2008 yeah banks wouldn't uh take a provision for a um for an impaired asset unless there was uh there's actually an evidence evidence of an impairment and um the expression too little too late was best used to describe the incurred loss method uh the iasb the international accounting standards board and here in the u.s fasb the financial accounting standard board they they recognize that um that issue they formed a joint task force as early as 2008 to look at ways to to improve the loan loss accounting um it was supported by the g20 g20 leaders actually in their communiques they're the leaders statements following the summits in london pittsburgh of that year of 2009 supported that move uh it was it was uh very uh strongly supported by the basel committee the other standard setting bodies and um so the iasb and phasma went down that road uh they came up with a um they came up separately with their own frameworks regrettably i think there was a there was a time they were looking to um to develop a single standard that i would apply throughout the world alas they didn't um but that's right i'll get to that in a second when the standards came out um or in the in anticipation of the standards being introduced um there was quite a bit of discussion about the day one impact the transition from the incurred loss method to the the new expected credit loss method the ecl um and um as it turned out that was way overblown i think um i think we um so we've gone from too little too late to too much too soon in the eyes of many bankers and i think fast forward to today i think first of all we've got uh we've got better disclosure we've got a better more accurate reflection of the assets on on banks balance sheets and and i think it has served servers very well so far up until this point in the crisis so the new ucl frameworks the ifrs 9 which is the international accounting standard board ecl framework it was issued in 2014 became effective from 2018 the cecil which is the u.s style for expected credit loss cecil is the current expected credit loss framework i was issued a couple couple years after uh ifrs 9 came into effect and it just became effective for listed um companies last year and it'll come to effect um for the rest of the bank population here in the u.s this year um there are different frame frameworks but there are uh there are some commonalities um better information more useful information i mentioned disclosure a moment ago so that's that's improvement forward-looking that's probably the biggest thing there's no need for an evident impairment a trigger event to have occurred uh before bank can report a loss and the the measurements for expected credit loss historical backward looking current point in time and for the first time um these forecasts including macroeconomic forecasts what's the operating environment going to look like in years time or even further um so there are common attributes there are some differences of course the ifrs nine and it looks at the uh taking provisions in three different stages while cecil the us version uh that's known for the for the life of the loan um but nevertheless they're both expected credit loss frameworks and they're both forward-looking i mean that's the important thing um so that's the that's a standard the standards part of it and you have to recognize that um i iasb and fasby i think those two standard setting bodies do a fantastic job at consulting um my years in ba in basel have spent an enormous amount of time issuing consultative documents meeting with interested parties um and taking all that feedback into account before finalizing the standard i think the accounting standards setters do a a fantastic job of this in fact they've been criticized for taking too long um in consulting i think they do a really good job um so so those two standards were put out after a tremendous amount of outreach and consultation um so that's the standards think about now um the implementation the oversight the supervision um of those standards leading up to the to the introduction of ifrs 9 as well as cecil there was a tremendous tremendous amount of supervisory guidance issued now um just look at last year all the guidance that was issued um in the context of uh of coven in the um the implementation of the new ecl framework so um we have something from the ifrs it's from the foundation itself the iasb itself the ecb singles um supervisory mechanism has put out faqs the um the basal committee has done so the federal reserve um and and many many others so there's a tremendous amount of uh of guidance about how the new frameworks should work in this this um you know this intense shock to the system uh so that's that i think that was um i mentioned earlier i think the from a supervisor from a regulatory perspective i think the the crisis has been handled extraordinarily well so far we've seen national programs to support to support the economies we've seen in parallel all the faqs and several supervisory and regulatory measures taken to to ease the strain the unexpected uh intense strain that we've seen so far and this is this takes the form of loan accommodations loan modifications debt restructurings working with borrowers um classifying loans all those all those measures are supervisory um we've also seen temporary changes to the leverage ratio in both europe and in the us so i i completely support and applaud the um um the supervisory authorities for for taking these actions provides much a lot of you know some much needed break breathing space of course it comes at the expense possibly of obscuring the true reflection of the bank's assets um and and firm's financial health um i think that's understandable i do recall clearly the the stress of the 2007 2008-2009 global financial crisis and and that was one of the um one of the defining moments of the crisis this this crushing lack of transparency and the uncertainty when it comes to banks uh financial soundness my concern is falling into into that trap again um i think so far so good forbearance um it's a um yeah it's an ugly it's a bad f word um notably the all the authorities have have avoided using that word for parents they prefer flexibility which i uh yeah i think that's a better f word to describe what uh what's been done during the last nine ten months it is a double-edged sword you know it does it buys time for uh um you know for the crisis to pass i think what the the organ what the authorities have done um has been pretty good it's been they've been very well defined why are these actions being taken what's the time frame to wind them down um so they are temporary and that's that's important we have to um we have to note the role of politics in this undeniable um and that's kind of a wild card it's not um that's not a prudential matter it's political in nature but that's the nature of the beast and that's that's why the measures were adopted i think the biggest risk is that um the temporary measures become permanent all right so let me just finish up i was hoping to set the stage here nicholas and let me just uh finish up by saying what do i see is some of the next steps and what should happen from a policy perspective um i've heard quite a bit my days in basel about already assessing the basel iii framework um and and i i think that's from a policy perspective that's really really important i think here too with the um ecl frameworks i think that's also important but in all those cases capital provisions um you know you have to do so from a from a position of uh of data um it might be a little bit soon to do it in the us since cecil just came into effect last year um i know from the iasb the ifrs foundation perspective they've already begun a post implementation review of ifrs9 and i think that's a great idea i i do i am mindful of the fact that these standards are meant to be in place through a cycle um but you know this this is a a unique situation um anyway i i think that's a good idea that the implementation review and i think fazbee should do a similar review when the time is right um i mentioned my concern about the temp temporary relief measures becoming um permanent how many times over the course of the last year have we heard the great milton friedman quote about nothing and so permanent as a temporary government program so that does give me pause to make sure that these measures are indeed made temporary as initially intended forbearance is a very slippery slope uh that also uh makes me a little bit nervous so far so good um but um it does obscure um you know it does have the the tendency to obscure true nature of a balance sheet and it becomes it can be very easy uh they're very difficult to unwind uh once you've gone down that road and finally um heightened supervisory focus and i uh highlight supervisory focus i i don't think regulatory measures are are needed to look at how banks are dealing with the covert related risks um so i i i do think that the supervisory authorities are going to look very closely at a bank's strategy uh how they're managing um credit from the underwrite from the uh starting the strategy underwriting loan collections um and so forth compliance and operational risk of course from covert uh also important points um so um nicola i will leave it at that and hand it back to you thank you so much and uh i have to uh mention that your slides are already on the peterson institute website as well as usual in this series so um so they're available for all participants um and also going forward adnan over to you thank you thank you nicola and thank you bill for your comments i agree with everything you've said and the clarity with which you mentioned them i'd like to make a couple of points especially with emerging market countries in mind when i look at the post pandemic landscape two issues stand out from an economic and financial sector stability perspectives first exit from the sizable forbearance has been provided to banks second how to revive the flow of credit by banks to support pandemic post pandemic recovery first on uh forbearance how much forbearance uh can be should be given and until when will of course depend on the evolution and the impact of covet in each country but in deciding on exit it's important to distinguish between gi ing forbearance to banks and disclosing them there is limited information on how much forbearance was provided to each bank in some countries and there's also some non-uniformity in the disclosure of that for bears these problems are bigger in emerging market countries where supervisory capacity and power are constrained there's therefore much information asymmetry about the degree to which bank forbearance has affected the health of each institution on supporting growth one of the post pandemic challenges will be how to uh to assess how much the income streams of households and firms have been affected by the pandemic while their debt burdens may not have declined commensurably this is partly due to the fact that in some countries forbearance programs have not in turn been passed on to the real economy we could therefore have a debt overhang problem further impairing the flow of credit and economic recovery in the post-pandemic period solving the growth issue requires more focus perhaps on harmonizing disclosure related to forbearance in addition we need to find ways to incentivize more sustainable debt restructurings of hidden npls that may be benefiting from the current forbearance this is needed because npls may easily rise in a number of countries for example india and where sovereign fiscal space is quite limited to help banks in the event of problems thank you uh that was crisp adnan uh it's the first time i think in the life of this series that uh somebody doesn't use their allocated speaking time but that that's uh also generous because it gives us more time for the q a i hope we'll come back to you uh on a number of those issues but i'll start with a question um that was submitted by uh john o'donnell from reuters and uh john is asking about the contrast between the u.s and europe um and uh of course bill uh you you weren't in a position to compare jurisdictions when you were in official dumb but we expect that you will have a freer more more freedom of of naming things now so the question is whether the u.s is taking a stricter approach on europe and forcing banks to deal promptly with loans unlikely to be repaid due to the pandemic and i understand that question um picking up on your last slide to be both about the standards and also about the implementation um yeah that's uh glad glad to hear from john i knew each other from my basel days um yeah i think there was some concern initially um i i was looking at some of the comment letters that the basel committee received i was just looking at them um recently in preparation for this webinar and one of the concerns among some of the european firms was that just just the timing that cecil was coming into effect two years after um ifrs9 and that gave the us a competitive advantage um that they wouldn't have to move to the more stringent framework for two years i don't think that really came to pass i i remember looking at um provisioning levels um 2017 2018 and if you look at european provisioning levels so provisions as a percentage of npls or as percentage of gross loans european banks didn't really fare so favorably compared to not just the us but the rest of the world the u.s levels were higher australian banks asian banks latin american banks were really levels of provisioning as percentage of npls and as a percentage of gross loans uh was higher in those regions compared to europe um i mean it's a it's a perfect storm for for um for european banks it's a it's a terrible operating environment with with um zero interest rates or negative interest rates so so you know net interest margins um are compressed or are flat it's difficult to um to to raise income uh through fee income because of competition um there's lingering npl issues in some countries think of i think of italy um and uh and then on top of that you've got the new stringent standard for provisioning you've got new capital standards this is all costing money it's very difficult to make money these days for european banks i think that has a lot to do with the the provisioning issues um well but john back to your your question is uh i don't think cecil creates a um cecil per se creates a competitive advantage or disadvantage i think that frameworks and ultimately deliver pretty much the same level i think it's the operating environment um and so other factors the fintech competition an overbanked market in many european countries i think that's really driving the level of provisioning probably not so much the uh the frameworks themselves but but um other the other factors that the banks have to contend with i i cannot resist uh asking a follow-up question which is uh on banking union and the creation of the single supervisory uh mechanism and you've observed that of course from your vantage point of the basel committee because you were as a secretary general at the moment when the ssm was uh implemented and introduced also as a member of the basel committee um is it your perception that it has made a difference or none at all uh how how do you how you would you look at that i think um i think it's made it tremendous you know i think just the the introduction of the the establishment of the ssm the single supervisory mechanism in 2014 i guess it really came into effect 2015. if i remember correctly a tremendous positive difference um i think the system is um i think it's made super the supervisory mechanism far more effective um it's it's still it's still pretty complicated because of the um you know given the role of the national competent authorities as they're called um but compared to what was there before the ssm i think it's it's made a tremendous difference i i i listened very carefully when people like you know the former uh chair of the ssm daniel nui uh the current chair uh andre henria and and many others at the ecb in in within the ssm have called for greater consolidation this is you know this is a critical next step i see the ecb put out some guidance of the day um on on consolidation and so this is this has really got to happen uh banking union um yeah it makes a a very big difference but there's there's got to be a great deal more consolidation than what's been done there's been very little in my view are not any comments on the us versus europe uh contrast uh it appears to me as a non-practitioner of that area that the u.s the key difference will now be the guarantees been that have been more relied on in europe uh than the us therefore there will be some greater comfort in europe about european banks and some of the firms borrowing that in the u.s bill on this um is there are there any technical issues associated with those guarantee programs i mean typically in europe they are not fully guaranteed there is a pen or 20 risk retention at the bank's level um but but but from a standard setter and an accounting perspective do you do you see a challenge with those guarantee programs or or or do you think the framework is you know fully uh complete to deal with them uh nicholas what really struck me um was with the paycheck protection program um the unique mechanism for for getting that money to to borrowers particularly um small medium-sized enterprises such a us bank yeah just the mechanism for for pushing money through the banks into the hands of smes is was really quite challenging um it's you know the banks still have to do their their credit their risk assessments their underwriting and it's i i think um i think the banks will criticize for not getting money out quickly enough and they'll be criticized when there's um you know when there are asset quality problems associated with those loans so that that was a a really unique approach to getting the money out the door into those into the hands of those who need it but i think there will still be some issues terrible inefficiencies and waste with the guarantee programs in europe um no i i i don't know i i think the uh i commend the ecb and all the other authorities for adopting the programs as quickly um as they did i i think they they leveraged tremendously off of the the experience learned from 2007 2008 there was actually a playbook this time uh so i i think the authorities did the right thing by acting as quickly and uh decisively as they did i i don't really have any comments though on the the actual technology technical aspects of the guarantee programs i have a question from simon giesen on the bank equity valuations and simon knows that they're currently suggesting that investors simply don't believe that even the fully loaded rf9 sequel estimates are right the things that the true levels of npls are much higher than what's been disclosed by banks in their financial statements so what could be done to increase market confidence in the numbers uh bill yeah this uh well put i this is what concerns me as well i um well we're going to find out in the next week or two we've got uh earnings season uh upon us um yeah i you know this is this is the problem with with forbearance um and you know working with customers it's all completely necessary um but it really does obscure the true nature of the um the soundness of an organization and the quality of his uh of its assets um i don't know i mean and i look at all the big banks financial statements when they were issued i i can't say that the npl's are understated if i would learn that they are i wouldn't be surprised but i haven't seen any clear evidence i know there are suspicions um but that's that's not an unintended consequence that's a fully intended consequence um yeah in many cases loans aren't performing but it's such a unique hopefully short-term um cause of that that once once the pandemic is under control people go back to work economies get back to a somewhat normal level pre-covet a lot of those problems are expected to go away and in cases when they don't well there's the guarant the government guaranteed programs to kind of make banks whole uh or to to help borrowers uh make their payments so i'm not that worried about um npls being overstated at least in the very short term um but as i said in my slides this is something you know something to look out for on a longer term basis i have a question about uh loon so so we discuss forbearance but of course there are two levels of forbearance right there is the supervisory forbearance which is supervisors giving banks a bit of slack uh and and then there is loan forbearance by banks on their borrowers which is uh which is uh which is a related but different set of challenges uh there's a question by tom uh from tom mcneese uh what should banks doing now before the day of reckoning when moratoria left uh and uh with respect to dealing with these loans especially at business models and income of debtors will or may have changed uh radically um how do you think about the loan moratorius that existed in a number of countries particularly i'm thinking of fiddly a number of emerging markets uh hungary is an extreme example uh what uh what what do you expect there um one of the most important one of the most important things uh as a bank examiner um the whole loan review process and um you know you sit around table bankers and you look at credits and you you discuss the classification and the payment the customer's willingness and ability to repay you look at collateral all those things any hint of of a bank restructuring a loan modifying a loan just to to uh rolling over loans to to give the customers some breathing space was was um yeah very negatively um viewed so everything that that examiners and bank supervisors have been asked to do this this last year it's really counter to the way the process is meant to unfold um and that's why there's been lots of supervisory guidance to supervisors um in dealing with um in dealing with the banks and for banks and dealing with with customers it is such a unique um you know situation that um yeah so so i think there's i think it's difficult from a supervisory perspective to really move away from that standard operating procedure uh of loan review and all of a sudden uh do what we've been telling banks to not do which is yeah go easy it's a temporary situation it's you know give it a little bit of time um i have no problem whatsoever with forbearance and i i i've said this publicly as far back as you know a year ago or last february in a time of crisis uh authorities have to do whatever it takes to to maintain financial stability um and that's fine as long as it is on a temporary basis similarly you know it's it's a sensible parallel um that supervisors have to you know take a um unexpected action to in a unique situation such as this to you know take to put the foot in the break a little bit and to uh to give banks a little bit of time so i i don't have any problem with that i i just need i just need to be reassured that this is not a long-term uh long-term thing admin on the lone moratorium especially in emerging markets a key issue will be that of course bill is right about giving forbearance to especially to cases where issues are mainly of liquidity inevitably however there will be some borrowers who will be insolvent the problem is the infrastructure for addressing insolvencies in some countries is not strong enough to address mass problems so therefore in a lot of countries there needs to be greater incentives and facilities for out-of-court settlements and unofficial meaning again without the direct involvement of supervisors restructuring of loans that's it so we'll have to devote another session of financial statements to that issue which uh sidetracks us a bit from measurement uh but uh but that is actually uh correlated i mean this question of insolvency is correlated to uh the question of uh you know uh what exactly will trigger insolvencies there's a question from zenith sharma about low interest rates right now and uh the way uh the question is framed is that an important reason for rising risk as firms can roll over with these without financial prudence but you could also flip that question in the sense that with low or negative rates maybe insolvency is no longer what it used to be and maybe debt overhang the same way it works for sovereigns an argument that has been made by olivia blanchard for example at the peterson institute maybe for corporate the same right i mean you can have very high debt ratios and not be so worried as you would be in times of higher policy rates uh so um so so how do you think that it's of this whole issue of you know that overhang over indebtedness also in the way uh loans can be assessed from an accounting and potential perspective bill yeah the um the debt service ability is um is not what it would be if rates were you know quote-unquote normal whatever normal is but if they were you know uh north of zero percent then uh the ability to service debt is going to be far more uh challenging for for borrowers um so similar with sovereigns um negative negative interest rates uh zero or very low interest rates not a horrible thing you allows you to borrow and it does give you give you a little bit more fiscal space um but uh you know just to go back to what i said before about um how do banks make money or how are banks sustainably profitable um through interest and fees right now hard to make money uh when the spread is so low between uh interest income and interest expenses so that's that's a real challenge for banks low interest rates but that means that means that uh if you think of zombie firms right i mean uh uh a firm that has high debt uh in terms of the volume of debt i'm not talking about interest expenses is not necessarily a zombie uh according to the same criteria as could be applied before or do i get this wrong yeah adnan first a couple points on the low interest rate environment in the advanced economies one there is argument to be made that these low enviro interest rates are affecting the profitability of banks and therefore their ability to recover two when interest rates are very low it is easier to finance and refinance zombie farms and that problem could be increased in low in in low interest environments in the case of emerging markets though interest rates are not as low that's right and banks are perhaps more profitable because of the large interest rate margins so that problem may not apply as much to the emerging markets i have a question from olga guyeva um which in a way could have been the first question uh because it's so um we've heard it so much what are your views bill on proficility i first nine and uh expected credits lost great for cyclicality uh should we have more counter-cyclical provisions uh one of my favorite topics pro-cyclicality um i i actually think um so this this is a um the expected credit loss frameworks are actually um i think very cleverly uh designed as as to temp down or to dampen pro-cyclicality if bank is is meant to look um um forward and make forecasts so on the upswing on the economic upswing um it's booking loans like crazy because the economy is growing high demand for credit [Music] but they're also taking provisions for expected creditalized losses over the life of the loan not not just the next year um but over the life alone i think that's um that's a it could be a very effective device um anti-cyclical device so i think it's a nice think it i think it uh syncs well with the bottles of framework i i do think it uh it has the opportunity to uh to serve as an anti-cyclical uh measure okay i have a number of questions about the um the standard setting and the regulatory framework so um so so um because there are many of them i'll ask you to uh take them a little bit in uh in cartoonish form uh i mean not just yes no answers but uh but but uh but several questions one is last year congress suspended expected credit loss uh it introduced the provision into the cares act that allowed banks to not apply uh so fast b standard on a ccl if they believed it was a bad idea for a limited period of time how do you assess this has it done any damage was it good thing to do uh was it implemented um and what does it tell us also about the political economy of uh accounting standards setting in the u.s um sorry i'm making many questions out of one well it's a um i mentioned before when you have forbearances there's a political dimension that is really important you have to you can't disregard the political dimension um i note that it was it was optional so it gave banks the flexibility uh to not adopt cecil i'm not sure how how um how many took advantage of that um i yeah i i don't think it was a good idea um i think it looks good it shows that the congress is looking out for for banks particularly the community banks um i don't know how effective it is it just it delays the day of reckoning and uh it was the same with with bank capital there comes a point um you know all these frameworks they've been they've been consulted upon they there was quite a bit of outreach for this for the standards for including the capital standards there comes a point where you know they were very well designed um and they took account of of of um parties that are you know interested parties who took account of their feedback there comes a point in time you just have to you know rip the plaster off pull the band-aid off and get on with things by the way i have a question from petrumen at the institute or actually now at harvard uh for you i mean in a way you i think you already answered that question but just for clarification uh are flexibility and forbearance synonymous in your uh understanding of practice yeah i so let's let's refer to these support measures that were adopted over the course of the last year let's let's refer to them as uh as flexibility so there's a flexibility in for banks dealing with customers there's now a little bit of uh flexibility provided by the supervisors that's a good thing um forbearance is more of a structural thing that that there's such a negative connotation i think particularly here in the u.s it has never worked well i think we've learned our lesson there was the savings and loan crisis in the 80s and 90s uh new england real estate texas real estate uh an agricultural forbearance doesn't work uh but basically your your semantics would be flexibility is temporary forbearance is something that yes that's in right admin would you agree with those semantic distinctions i i look at flexibility as the room for doing things differently within the existing rules for parents to be more discretionary and conscious hopefully for a temporary so another initiative last year was from the federal reserve after the turmoil episode in mid-march on the u.s treasury's market they decided to remove sovereign exposures holdings of u.s treasury bonds from the calculation of the leverage ratio and that's a core basel issue uh bill so that's uh that's your former church uh um so first question was that the breach of basel three and second uh how do you think about it was uh was it the right thing to do was it a breach of basel iii so um i'll put let me rephrase nicolas was it um is it consistent with basel three definitely not um how do i think about it i go back to the point i made earlier in a time of crisis authorities have to do anything they can to maintain market stability financial stability um and in this case you know i mentioned the importance when you adopt these kinds of measures you have to define the the purpose and you have to set a timeline the fed did both of those the uh the reason they adopted the uh this provision for the leverage ratio was uh more market stability than bank stability financial stability it wasn't really to give banks a little bit more um balance sheet space u.s banks already have leverage ratios you know cluster around six seven percent so it really wasn't a prudential matter it was really a market stability matter the important thing is that measure is meant to um go away at the end of march um let's see if it happens i i suspect it will uh well you know if the situation improves if it doesn't the authorities um would have to i think they'd have to consult again i i think they'd have to there'd have to be some kind of public statement that they're extending this provision it uh it is meant to be temporary uh i mean i'm um i'm not as used at central banking speak uh as many of the audience but uh but i thought that was quite a harsh indictment um so um there's another question on uh on the regulatory framework um from alessio de vincienzo uh at uh bank of italia uh and issues with the fact that both in the u.s and in the eu well i'm not i'm not sure what he means what he refers to in the u.s but uh certainly to you a number of banks are still with national gaap both in general and taking into account the current target conditions uh and not using uh ifrs standard in that case by the way i don't think that's the case in italy but in the case of other eu member states um so how do you think of this uh specifically for non-listed banks of which there are many in europe should non-listed banks no matter how small they ask to use ifrs for their financial accounting that's um so that's not so much a prudential question as it is an accounting question i mean there are two separate things um but they're connected i mean from a prudential standard i used to get asked all the time um what was my view about the u.s not adopting basel standards for all banks you know for the all five six thousand banks in the u.s and my my initial response is and it and it's i think relevant here um from a global perspective uh for from a system-wide perspective i'm worried about the big banks the the banks that are interconnected and complex and that can cause uh market disruption if they were to uh to have problems uh i guess you could apply that logic to to banks applying um the rules for all banks in their system do i care if a is small you know cooperative or savings bank in germany or italy doesn't apply the accounting rules well on an individual basis no i don't care but but on an aggregate basis when you've got a subset you know i mentioned the snl crisis before most of those really small institutions but in the aggregate yeah they cause problems so i'm not really giving an answer i i just think you wouldn't be surprised to hear rules and rules they should apply to everyone uh another question about the regulatory framework is from harl weigling at the austrian ministry of finance whether you think of the idea to introduce a green supporting factor in accounting systems to supposedly reflect the lower transition risk of green assets well i could uh so it's a good distinction that uh that was made in the question should there be a green um green treatment for accounting purposes um yeah sure why not i mean the ifrs uh had a consultation late last year on sustainability reporting uh that that's attracted a tremendous amount of attention uh and so that's one of the top items on the ifrs foundation's agenda these days is sustainability reporting um yeah i think at a minimum got to get the taxonomy right the definitions right um if the question was slightly different which is should there be a green supporting factor or some kind of recognition of green uh credits from a prudential standard um my reaction is much different then my reaction is um yeah if if the data shows that uh green finance is less risky than brown finance uh and that's that's based on data and analysis i don't think we've got that um so i would be extremely reluctant to go down the road of saying yes to you know to use regulation as a policy tool to get banks to you know to support green finance and to move away from from brown finance i think that you know people want a risk sensitive framework so i and i agree i think we should have one but let's make sure uh it is risk sensitive and that it's based on data the question from ego caruso may be first to admin is now the right moment for emerging markets to an emerging and developing economies to implement 59. look in principle at some point banks should move to ifrs 9. i don't think you change the issues change standards in the middle of a crisis with so much uncertainty first banks have very limited operational capacity especially with distant working other at the same time my understanding is that on-site supervision has become much weaker for obvious reasons so it is much much better to wait till a crisis over and not only add any new uncertainty factor into the situation right i now i think that's a good answer i agree with that none but again i i caution this has got on a in a very short term basis i think none's right i think it is not the right time to introduce um a significant change to a system although you know it's not like uh ifrs 9 was just introduced last week or even last year people saw this coming a long long distance away um i i also i've heard this you know when it comes to emerging markets and developing economies that you know they're they're different they should be held to a different standard that that's doing that soon those countries extreme disservice um the level of sophistication the expertise in those countries is not that much different from the rest of the world i think we really do them a disservice so i think people who say they should be held to a different standard uh are doing those countries a significant disservice i fully agree with bill on that point i have a number of questions about fragmentation and there's a question about uh from team closing about you know the different capital responses by banks globally and is the flexibility ending up undermining some comparability of bank capital ratios uh is there a need for more consistent interaction uh between the expected credit losses and capital globally um uh that's uh sets these words um and also a question from boston yazbeth uh at the single resolution board in brussels after years of alleged consolidation he writes since a great financial crisis would you agree that different national measures introduced to help fight the pandemic effects and aim to support their national financial systems might lead to unsustainable fragmentation of financial sectors so how do you think about this dynamic of uh financial fragmentation i don't know i'll go first if that's okay i think um yeah i i think that's right i think there is a distortion that's been introduced but it's um it's a distortion that's um that's there we have to live within it and it's there for good reason it's to preserve stability of the system so um yeah i fully agree it does these distortions will impair comparability um but at the same time i think the i i think the disclosures that banks make today compared to where we were in 2008 and and shortly after the global financial crisis period i think the financial uh disclosures are far far better today uh i think the ecl disclosures are very good do we want uh do we want banks operating in the same exact manner no definitely don't i do think disclosure is fairly consistent i think supervision does does a good job at making sure the banks adhere to the disclosure standards so i'm not so worried about the lack of comparability i do accept the fact that in this period because of different national measures um and support programs that were adopted i do accept the fact that um it will be difficult to to make um you know comparable assessments of of firms but that uh again i hope that's a temporary thing admin i agree with what bill said i would only also say that look some of this is inevitable because the nature of the economies and the structure of the economies especially when you move between emerging and advanced economies is different and the nature of the shocks are different for example some of these emerging markets are very much dependent on tourism let's say and it is much more focused and easier to locate those and then in an advanced economy where many other firms and many many types of sectors would be affected so i think it's good to have comparable standards and measures but inevitably there will be some as we go along there's a question from julian rose who uh sent this is there a contradiction between accounting regulations that encourage the use of market data on loan performance trends and competition regulation particularly in europe that seems to discourage lenders from sharing granular data on business loan portfolio level performance and if so does that impact the accuracy of ecl estimates and should be should it be addressed he adds that in the u.s for example lenders share data that allows them to see the trends in default rates across all lenders for say tractor loans in ohio where there is nothing like this in europe and one reason appears to be the concern or maybe to uncertainty as to competition low compliance uh bill is is that something that uh requires uh thinking or reform i don't know it's um they do say you know as the question points out they do ser serve uh different purposes um it's an interesting question i wasn't aware that i wouldn't call it a conflict uh you know they do vary in their purpose i i don't know if um i don't know if it really has hampered um or if it has really impaired the um the information that an analyst would get uh in looking um at the financial statements um i've not thought about that before um so i'm not really sure what to think of it i just unders i do understand when you've got competing mandates competing objectives of different types of disclosures um it does uh you know it does destroy things a little bit yeah i'm not sure either i i may want to follow up with julian because it's interesting maybe that banks refuse to disclose something and say it's for competition reasons but uh but i'm not sure there has been any enforcement actions that support that view um maybe we're getting close to our uh i'll i'll end with a cosmic question um accounting convergence and harmonization globally i mean the ifrs framework and i mentioned that you're involved with the ifrs foundation bill so ifrs framework has been tremendously successful in the last 20 years but there is still a big missing piece under the us so um you're american you live in near washington uh there are lots of things chanting into the u.s these days do you see yesterday there was a rumor i'm not sure it's confirmed that gary gensler would become the new head of the u.s securities and exchange commission do you see any um prospect for the u.s to move again towards i4s may be allowing the optional use of firefox by u.s lift compan es or revise the dynamic of convergence uh in the years ahead i don't know um nicolas i i i do know my my 20 years in basel this is um and i've been involved with the iasb uh and i first foundation for some time um and i've i've also dealt with uh i i just know that it's it's a long long standing issue um i think there was a glimmer of hope that the two standard setting bodies would would produce a single um expected credit loss framework that didn't come to pass um my hopes of having a a unified global standard uh no i i my expectations are rather low on that question whether or not they'll be uh you know there's quite a bit of interaction between the two iasb and fasby um so it's you know i think both sides are aware of the difficult difficulties that it creates but you know the us is such a such a massive market um and so many companies both domestic and global uh the international firms that do business here uh they've got so much invested in the systems that they've put together to comply with uh fasb standards um i don't yeah i don't see this happening anytime soon um but that doesn't mean that you know that the two standard student bodies aren't uh always meeting and always talking about ways to to try to align to each other's standards admin you've been uh looking at the emerging market space when ifrs was implemented there has it made the difference look i i think it has but i'm also it is it has helped at least set the expectations i'm also aware that in country there's so there are also countries where they attempted to do ifrs then too much negative stuff about some balance sheets of banks came to light and they abandoned the effort but as bill said i think it'll be a major disservice if we hold the emerging markets and the advanced economies to different standards when it comes to ifrs thank you so much and uh i think there was a lot of food for salt here uh also a lot of questions we um didn't have time to address and i apologize for example to miguel medina uh [Music] my google colleague alexander layman daniel trender and others time henriquez um just too much to discuss but uh we'll continue to pay attention of course to this major theme of uh credit loss recognition and measurement uh as the year goes our next session uh will be on brexit and uh what we can observe from the early uh experience uh now that it's a fact on the ground on uh on january 27 with william wright and nate sheets and um happy um new year to all uh thanks for attending this event uh and uh thanks in particular to bill cohen and admin mastery for uh what i thought was a very very uh illuminating uh disposition of uh of credit class um approaches thank you so much thank you thank you thank you very much bill bye you