By Huw Jones
LONDON (Reuters) - An accounting rule forcing banks to set aside capital far earlier for troubled loans will be completed next month and start in 2017, a global standard setter said on Tuesday.
Leaders of 20 major economies (G20) called for the new rule in 2008 at the height of the financial crisis when taxpayers had to bail out undercapitalised banks.
Banks currently set aside capital when a loan effectively defaults, seen as too late, and the new rule would force lenders to set aside at least some capital upfront before any impairment appears.
The G20 wanted a single global rule for investors to compare the health of top lenders but this is now unlikely despite five years of trying by two key standard setters.
The Financial Accounting Standards Board (FASB), which sets rules in the United States, and the International Accounting Standards Board (IASB), which writes standards in over 100 countries, including Europe, are finalising two different rules to the disappointment of the G20.
"I think we will finish deliberations in January. We are practically done and we don't have any more major decisions to make," IASB Chairman Hans Hoogervorst told Reuters.
"That means it should be ready for an effective date of the first of January 2017," Hoogervorst said on the sidelines of a conference organised by the ICAEW, an accounting body.
FASB is reconsidering its own draft version, with the IASB model as one possibility but the "most likely scenario" for achieving a single rule would be for the U.S. standard setter to adopt the IASB model, Hoogervorst said.
Few believe this will happen given big differences and mounting regulatory pressure for an agreement now that five years have passed since the G20 call was made, with another four years to go before the IASB rule will take effect.
FASB wants banks to make provisions for full lifetime losses from the first day of the loan, while the IASB has opted for a staged approach with only some provisioning at the start.
Richard Thorpe, senior accounting and auditing advisor to the G20's regulatory task force, the Financial Stability Board, said he would much rather have a single global rule.
"We haven't managed to get the same accounting after five years of trying and that really is a shame," Thorpe said.
With two rules it would be harder for investors to compare banks and they also left too much to judgement, making it harder to apply them consistently, Thorpe said.
"There will be a big change in the size of provisions. How early can banks provide information in the accounts on the effects of the standard?" Thorpe added.
Banks are anxious for a final agreement as the new rule will require major preparatory work.
"This is going to be quite a profound change," David Bradbery, European head of technical accounting group at Barclays bank, told the conference.
"We are starting to see interest from investors and analysts even at this early stage into what might be the impact of these proposals, and that is only going to increase as we get closer to adoption," Bradbery said.
"First reporting is not necessarily going to be clearly understood by everyone. We are looking to the publication of the standards as the start of a comprehensive understanding process," Bradbery added.
The G20 wants the two standard setters to say by year-end how they will "converge" all their rules, a deadline that has been repeatedly put back as the United States has yet to commit to adopting globally written rules.
"I think there is a recognition in the Financial Stability Board that it's going to be very difficult to come together," Hoogervorst said.
(Editing by Susan Fenton)