Month in Brussels - Graham Bishop's Personal Overview of July 2013

Commissioner Barnier’s call to the UK was welcome: “The single market in financial services - We need the UK on board”. But he was explicit in one respect: “I know one thing. The single market cannot be 'pick and mix'".

The EBA published a report on risks and vulnerabilities of the EU banking sector and noted there is increasing uncertainty about the quality of banks' assets and valuation. The agreement reached at the EBA table on the need to conduct Asset Quality Reviews across major EU banks will contribute to dispel concerns over the deterioration of loan books, especially if appropriate and consistent disclosure is provided.

Credit Impairment accounting: The debate amongst accountants seems detached from the immediate (and urgent) need to produce an Asset Quality Review within a year to launch the SSM…

In its response to IASB proposals on Expected Credit Losses, the EBA supported the introduction of an expected loss model. The current incurred loss model has resulted in the well-known “too little too late” recognition of credit losses. The move to an expected loss model will improve the decision usefulness and relevance of financial reporting for users, including prudential regulators.

The Commission proposal for a Single Resolution Mechanism (SRM) to complement the Single Supervisory Mechanism (SSM) should have crowned the Banking Union process but instead triggered some serious push-back, especially from Germany. How much of this is pre-election posturing is debatable but Europe may find that the current SRM proposal has been fatally undermined by casting doubts on its legality. Fortunately, a robust preparation for the SSM should mean that no significant bank is likely to need to be resolved for some years once any necessary re-structuring has been done in the next year or so – but under the existing national systems.

Barnier: “The UK and the Commission both strongly believe that financial services should be part of the mandate of the TTIP… But the United States does not agree. .. Our only chance of persuading them is if we show up at the negotiating table speaking with one voice. I don’t think any European country – however special their relationship with the US is - can succeed alone. But when you sit at the negotiating table representing the biggest consumer market in the world, you’re in a much stronger negotiating position.”

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