Euro banks face transitional derivative rules
European banks may have to have to use transitional accounting standards for up to two years even if the current disagreement over derivatives standards is resolved sooner, according to EU single market Commissioner Frits Bolkestein.
Derivatives accounting standards, proposed by the International Accounting Standards Board, are scheduled to enter force on January 1 2005 but there is still debate over their potential effect. French president Jacques Chirac claims they will introduce unacceptable "volatility" into financial statements. But the IASB, with the support of banks such as HSBC, believes the new rules are an important step towards convergence with the US.
The two sides have failed to resolve their differences so the IASB has promised to look at new methodology to meet concerns over the accounting treatment of derivatives. But in the meantime, it plans to present information in a way that will reduce the impact on banks' balance sheets. The European Commission has given the IASB until the middle of June to do so.
But Bolkestein's statement that "we may have to agree on a temporary measure that would last for two years," suggests that it could be a while before the long term problem is dealt with.