What is the effect of IFRS 9 ECL and FinRep on the stability of banks in Europe?

Abstract

In recent years, regulatory and accounting bodies such as the European Banking Authority (EBA) and International Accounting Standards Board (IASB) have pursued new accounting standards and requirements to enhance financial stability in the financial market of the European Union. The expected credit loss model (ECL) of the International Financial Reporting Standard (IFRS) 9 was introduced by the IASB to account for expected future credit losses, expanding the time horizon with significant methodological changes of the previous incurred loss model of International Accounting Standard (IAS) 39. Furthermore, the Capital Requirement Regulation brought new obligations for financial reporting of banks with the goal to increase transparency of systematic risks in the market. This dissertation assesses the impact of the ECL model of IFRS 9 and regulatory financial reporting (FinRep) on the stability of banks in Europe that was implemented in 2018. The expected credit loss model brings various effects that impact the stability of financial institutions, both positively and negatively. The high dynamics of FinRep led the reporting requirement to develop to a significant component of the Compliance costs of financial institutions, lowering profitability. This paper finds that IFRS 9 ECL and FinRep have an overall significant positive effect on the stability of banks in Europe. Furthermore, this paper finds that the impact of IFRS 9 ECL and FinRep on financial stability varies over time and in accordance with the regional markets of the banks.

Date of Award	25 Jan 2022
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Eva Schliephake (Supervisor)