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08 March 2006

BBA/LIBA: response to BIS consultation on sound credit risk assessment and valuation for loans

BBA and LIBA published their joint response on the BIS consultation on sound credit risk assessment and valuation for loans. The Basel committee set out supervisory guidance based around 10 principles applying to supervisory expectations concerning sound credit risk assessment and valuation for laons, and supervisory evaluation of credit risk assessment for loans, controls and capital.

The BBA and LIBA support the principles outlined within the paper and especially support that these remain at a high level with only general references to IAS 39 or Basel II requirements and guidance.

The credit risk framework provides the basis and underlying data for both IAS 39 provisioning and Basel II capital purposes. Whilst we support the principle that consistency in the use of common parameters is a desired aim, industry should not be forced to use common metrics when it is not appropriate or practical.

We feel the paper does not misrepresent the differences between Basel II and IAS 39, or other accounting treatments, however, we note and support that the BCBS has not sought to explore the specifics of these differences in more detail in this paper. Whilst it remains important for the paper to recognise, as it does, that differences exist, we support the approach taken to link the two disciplines through a series of high-level principles. We would also be concerned if audit firms took these principles and applied a too-strict interpretation of them, and we therefore, strongly discourage BCBS from developing further detail to underpin the proposed principles.


© Graham Bishop

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