IFRS – Global Banking BANK STATEMENT - KPMG

22 Pages·2015·0.87 MB·English

THE IFRS – Global Banking
BANK STATEMENT
Q4 2014 NEWSLETTER

hT e macro hedging RESPONSE TO MACRO HEDGING
proposals have not received PROPOSALS, AND THE IMPACT OF
iw despread support ; IFRS 9 ON REGULATORY CAPITAL
staek holders are looik ng eW lcome to the 4Q 201 4 issue o f our uq arterly banik ng nesw letter in hw ich
to ree� ct ris k mitigation ew provide updates on IFR S developments that directly impact bansk and
consider the potential accounting implications o f regulatoryr� euq irements.
through a e� ix ble
Highlights
and voluntary hedge
accounting model, rather l � � aH ving n� alised its ne w n� ancial instruments standard earlier this year, the
IA BS has turned its of cus to a longr- unning source o f debate : the distinction
than af ir valuing all between liabilities and equity – see page2� .
hedged and unhedged
l �hT� e comment period of r the IAs’BS proposals on macro hedging ended in
open ris k positions. � cO tober. eW loo k at some o f the comments received to see ho w staek holders
responded to the proposals – see page 6 .
Abhimanyu Verma, l � � How do you compare? hT is time, ew loo k at disclosures under IFR1�S 2
Disclosure of Interests in Other Entities about unconsolidated structured entities
Financial Services,
– see page 9 .
KPMG in Canada
l � �Regulation in action :eW discuss the impact of IFRS 9 Financial Instruments
impairment requirements on regulatory capital – see page 13 .
© 2015 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. 1
IASB ACTIVITIES AFFECTING YOUR BANK
New project on aH ving n� alised its ne w n� ancial instruments standard earlier this year, the IA BS has turned its
of cus to a longr- unning source o f debate on the distinction betew en liabilities and euq ity. As a
the distinction
result, in its cO tober meeting the oB ard agreed to start ow r k on its proej ct on n� ancial instruments
between liabilities
iw th characteristics o f euq ity, hw ich may result in a discussion paper.
and equity
hT e IA BS decided to pursue the of lloiw ng tow overlapping streams o f ow r.k
• Classifcation: Investigating potential improvements to the classic� ation o f liabilities and euq ity
in IA23 �S Financial Instruments: Presentation. hT is iw ll also include an investigation o f potential
amendments to the den� itions o f liabilities and euq ity in the Conceptual Framework for
Financial Reporting.
• Presentation and disclosure: Investigating potential improvements to the presentation and
disclosure reuq irements of r n� ancial instruments iw th characteristics o f euq ity, irrespective o f
hw ether they are classie� d as liabilities or as euq ity.
hT e IA BS noted the interaction betew en this ne w research proej ct and the separate Conceptual
Framework proej ct 1 as of llosw .
• hT e epx osure dratf of r the Conceptual Framework iw ll propose retaining the eix sting den� ition
o f euq ity and clariyf ing some aspects o f the den� ition o f a liability that are not directly related to
distinguishing liabilities rf om euq ity.
• hT e proposed den� itions o f a liability and o f euq ity to be included in the epx osure dratf of r the
Conceptual Framework iw ll not constrain the ow r k in the research proej ct. Instead, the research
proej ct iw ll consider various approaches to distinguishing betew en liabilities and euq ity,
including approaches that could reuq ire changes to the den� itions o f a liability or o f euq ity
in the Conceptual Framework. eN vertheless, any such changes are unliek ly to reverse the
claric� ations to be suggested in the epx osure dratf of r the Conceptual Framework.
Transition In uJ ly 201,4 the IA BS issued the completed IFR S 9 Financial Instruments, hw ich incorporates the
ne w reuq irements of r impairment o f n� ancial instruments.
Resource Group
for Impairment hT e ne w impairment reuq irements in the of rm o f an epx ected credit loss model represent a
of Financial uf ndamental change to current practice and iw ll thereof re have a signic� ant impact on most bansk .
oT enhance robust and consistent implementation o f the epx ected credit loss model, the IA BS has
Instruments
set up ther T ansition Resource Group of r Impairment o f Financial Instruments I( GT .) hC ris pS all,
KPMGs’ global n� ancial instruments leader, is a member o f the IGT .
hT e purpose o f the IGT is:
• to solicit, analyse and discuss staek holder issues arising rf om implementation o f the ne w
impairment reuq irements;
• to inof rm the IA BS about those implementation issues, hw ich iw ll help the IA BS determine
hw at, i f any, action iw ll be needed to address those issues ; and
• to provide a public of rum of r staek holders to learn more about the ne w impairment
reuq irements rf om others involved in implementation.
hT e IGT iw ll not issue guidance. Meetings are planned of r 22 April, 1 6 eS ptember and
11eD � cember 2015, and uf ture issues o f The Bank Statement iw ll include updates.
1. For more inof rmation, see the proej ct page on the IAs’BS ew bsite.
2 © 2015 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
Investment eN w reuq irements alloiw ng investment entities to use af ir value accounting came into eef f ct
rf om 1aJ � nuary 201,4 but early adoption had already highlighted a series o f application issues. In
entities: Applying
response, on 1 8 eD cember 201,4 the IA BS issued Investment Entities: Applying the Consolidation
the consolidation
Exception (Amendments to IFRS 10, IFRS 12 and IAS 28).
exception
Under the amendments :
• an investment entity parent is reuq ired to af ir value a subsidiary providing investmentr- elated
services that is itsel f an investment entity;
• an intermediate parent h( olding ) in an investment entity group can be eex mpt rf om preparing
consolidated n� ancial statements ; and
• hw en a noni- nvestment entity investor applies the euq ity method, it is permitted to retain the
af ir value accounting applied by its investment entity associate or oj int venture.
hT e amendments are eef f ctive of r periods beginning on or atf er 1 aJ nuary 201.6 aE rly adoption
isa� lloew d.
Classifcation In oN vember 201,4 the IFR S Interpretations oC mmittee discussed the classic� ation o f the liability
of r prepaid cards issued by a ban k in the bans’k n� ancial statements and the accounting of r the
of the liability
unspent balance o f prepaid cards iw th the of lloiw ng ef atures :
for prepaid
cards issued by • has no epx iry date ;
a bank in the • cannot be reuf nded, redeemed or ecx hanged of r cash;
bank’s fnancial
• is redeemable of r goods or services only at selected merchants, hw ich could range, depending
statements
on the card programme, rf om a single merchant to all merchants that accept a specic� card
netow r ;k and
• has no inactive balance charges, hw ich means that the balance on the prepaid card does not
reduce unless it is spent by the holder.
hT e oC mmittee aw s asek d to consider hw ether the liability of r these prepaid cards is a
non- n� ancial liability, because the issuing ban k does not have an obligation to deliver cash to
thec� ardholder.
hT e oC mmittee observed that the liability of r prepaid cards meets the den� ition o f a n� ancial
liability because the issuing ban k has a contractual obligation to deliver cash to the merchant that
is conditional on the cardholder using the prepaid card to purchase goods or services. Accordingly,
IFR 9 �S I( A 93 �S Financial Instruments: Recognition and Measurement ) should bea� pplied.
oH ew ver, it aw s concerned about similar arrangements, such as customer loyalty programmes or
prepaid cards issued by nonb- an k entities that can only be redeemed of r goods or services o f the
issuing entity, and asek d the sta f f to consider the basis of r a distinction betew en prepaid cards
iw th the ef atures outlined above and other similar arrangements. hT e oC mmittee also asek d the
sta f f to of llo w the discussions o f the U S FAs’BS mE erging Issues aT s k Force on this issue.
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Holder’s In oN vember 201,4 the IFR S Interpretations oC mmittee discussed the accounting by the holder
of r euq ity instruments issued by a central ban k hw en the central ban k ecx hanges its original
accounting
euq ity instruments of r ne w ones iw th dief f rent terms. hT e submitter asek d hw ether the holder o f
for exchange
the euq ity instruments should account of r this ecx hange under IA S 93 as a derecognition o f the
of equity
original euq ity instruments and the recognition o f ne w instruments.
instruments
hT e oC mmittee observed that :
• because o f the uniuq e nature o f the transaction, this issue is not iw despread ; and
• the submitter had not identie� d signic� ant diversity in accounting of r this transaction among the
holders o f the euq ity instruments in uq estion.
For these reasons, the oC mmittee decided not to add this specic� issue to its agenda. oH ew ver,
it asek d the sta f f to prepare more analysis on the general matter o f derecognition o f n� ancial
assets that have been modie� d to identiyf hw ether an issue o f suc� f iently narro w scope could be
identie� d to be raised iw th the IA.BS
Control of a In oN vember 201,4 the IFR S Interpretations oC mmittee discussed hw ether a particular party
controls a structured entity that is created to lease a single asset to a single lessee and is
structured entity
n� anced by a senior and a uj nior lender. hT e submitter asek d hw ether the uj nior lender controls
by a junior lender
the structured entity and so should consolidate it. hT e lease is a n� ance lease as den� ed by
IA1�S �7 Leases.
hT e oC mmittee noted that, in assessing the eef f ct o f a lease on an assessment o f poew r made
in accordance iw th IFR S 10 Consolidated Financial Statements, it is necessary to maek a careuf l
assessment o f the af cts and circumstances. It also noted that it is not the oC mmittees’ practice to
give caseb- yc- ase advice on individual af ct patterns.
hT e oC mmittee concluded that the principles and guidance in IFR S 10 are suc� f ient to enable
a determination to be made hw en all reuq ired inof rmation is nk onw and that neither an
interpretation nor an amendment to the standard aw s reuq ired. For this reason, the oC mmittee
decided not to add this issue to its agenda.
Measuring Also in oN vember 201,4 the IFR S Interpretations oC mmittee discussed hw ether the election to
measure investments in associates and oj int ventures at af ir value is available on an investment-
investees at
byi- nvestment basis or hw ether it is an accounting policy that has to be applied consistently in
fair value: An
accordance iw th paragraph 1 3 o f IA S 8 Accounting Policies, Changes in Accounting Estimates
investment-by-
and Errors.
investment choice
hT e submitter noted that the IA BS had revised IA S 2 8 Investments in Associates and Joint
or a consistent
Ventures in 2011 and claimed that beof re the revision entities ew re epx licitly permitted to choose
policy choice?
to measure investees using the euq ity method, or to measure investees at af ir value, on an
investmentb- yi- nvestment basis. oH ew ver, atf er the revision it had become unclear hw ether an
entity still has the same choice.
hT e oC mmittee agreed that the ow rding in IA S 2 8 2( 011 ) is not clear on this point. Accordingly,
it decided to recommend to the IA BS that it clariyf the ow rding o f paragraph 1 8 o f IA2�S 8 in its
annual improvements to IFR,S to maek clear that an entity is permitted to measure investees at
af ir value on an investmentb- yi- nvestment basis.
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IFRS 9: nO 1 7 eD cember 201,4 the board o f the uE ropean Financial Reporting Advisory Group FE( RAG )
met to decide on the approach that it iw shes to pursue in providing advice to the uE ropean
Endorsement for
oC mmission on the endorsement o f IFR S .9 FE RAG plans to issue a dratf endorsement advice of r
use in the EU
public comment in 2Q 2015 and to n� alise the endorsement process in 2H 2015.
Leases project
uD ring 4Q 201,4 the IA BS and the FA BS continued redeliberating the proposals in the May 201 3
epx osure dratf Leases.
KPMG issues nesw letters about this proej ct, among others. eS e page 20 of r uf rther details.
© 2015 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. 5
IASB’S NEW APPROACH TO MACRO HEDGING: ARE
STAKEHOLDERS EMBRACING THE PROPOSALS?
Abhimanyu Verma, Partner, Financial Services, KPMG in Canada
The DP
aB nsk are engaged in continuous identic� ation, analysis and mitigation o f rissk arising rf om their
outlines a
activities. hT ese include rissk arising rf om n� ancial instruments such as interest rate, currency and
fundamental price ris.k hT e identic� ation, analysis and management o f rissk are otf en done at a portof lio level
change and based on net epx osures. hT is ris k management approach is commonly reef rred to as d‘ ynamic
ris k management ’ or m‘ acro hedging.’ uC rrently, under IA S ,93 IFR S provides models of r macro
not simply a
hedge accounting, albeit only of r interest rate ris.k hW ile those models allo w some e� ix bility over
modifcation to the general hedge accounting model, they contain restrictions that limit their ability to ree� ct
existing hedge some common dynamic ris k management activities. It can thereof re be dic� f ult to uf lly ree� ct a
bans’k ris k management activities in its n� ancial statements, and some bansk are letf to of cus on
accounting
reducing volatility in prot� or loss through proyx hedging designations rather than on ree� cting
models, and their ris k management activities.
should be
considered
Limitations of existing macro hedge accounting
carefully.
IA S 93 allosw companies to select either a af ir value hedging model or a cash o� w hedging model
of r portof liol- evel management o f interest rate ris.k oH ew ver, these models do not necessarily
portray dynamic ris k management.
yT pically, hw en managing interest rate ris,k a bans’k main ris k management obej ctive is to protect
the net interest margin rf om u� ctuations in interest rates due to changes in marek t rates and
rf om mismatches betew en the maturity ando/ r repricing o f interestb- earing assets and liabilities.
uC rrent IFR S accommodates some aspects o f dynamic ris k management by alloiw ng some
hedged items to be included in hedge relationships on a b‘ ehaviouralised basis ’ – e.g. prepayable
ex� d interest rate mortgages – rather than on a contractual cash o� w basis. oH ew ver, this model
can be applied only of r hedges o f interest rate ris k and cannot be used of r other types o f ris k –
e.g. commodity price ris k and of reign ecx hange ris.k In addition, an entity cannot designate a net
amount comprising both assets and liabilities. Also, under the current models certain items cannot
be considered eligible hedging items – e.g. demand deposits, pipeline transactions or return on
onw euq ity – and the use o f a b‘ ottom layer ’ approach is not alloew d.
aB nsk have of und the eix sting macro hedging model dic� f ult to apply in practice and have
uq estioned hw ether it results in useuf l inof rmation in their n� ancial statements.
Overview of the approach outlined in the DP
In response, in April 201 4 the IA BS published a discussion paper t( he PD ) on a ne w approach
to macro hedge accounting that aims to better ree� ct companies ’ ris k management activities. 2
hT e PD outlines a uf ndamental change and not simply a modic� ation to eix sting hedge
accountingm� odels.
Portfolio revaluation approach
oT help stimulate a debate, the PD put of raw rd one possible approach to macro hedge
accounting, a p‘ ortof lio revaluation approach ’ P( RA,) hw ich in some aw ys is similar to the af ir value
hedgingm� odel.
Under the PRA, managed epx osures ow uld be identie� d and remeasured of r changes in the
managed ris,k iw th the gain or loss recognised in prot� or loss. hT e remeasurement ow uld be
based on a present value techniuq e. eH dging instruments ow uld continue to be measured at
FPTV L and the perof rmance o f the ris k management activities ow uld be captured by the net eef f ct
o f the above measurements in prot� or loss.
2. PD 2/ 011/4 Accounting for Dynamic Risk Management: A Portfolio Revaluation Approach to Macro Hedging. For
more inof rmation, see our publication eN w on the oH rioz n : Accounting of r dynamic ris k management activities .
6 © 2015 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
Rissk that are not managed ow uld not be included in this approach, because this is not a uf ll af ir
value model.
Dynamic risk management
nO e o f the ek y aspects o f the ne w approach is that it ow uld be applied to rissk that are managed
on a dynamic basis. yD namic ris k management is a continuous process that involves identiyf ing,
analysing and deciding hw ether, and ho,w to mitigate one or more rissk associated iw th an o‘ pen
portof lio ’ – i.e. a portof lio that is subej ct to regular additions and removals o f epx osures e( .g. a loan
portof lio iw th ne w loans being added and eix sting loans maturing or being prepaid over time.)
Eligible hedged items
hT e PD discusses broadening the scope o f the PRA as compared iw th the current hedge
accountingm� odel. It sought comment on hw ether the of lloiw ng items should be eligible of r
inclusion in the managed epx osure of r interest rate ris:k
• pipeline transactions – e.g. of recast volumes o f dradw onw s o f ex� d interest rate products at
advertised rates ;
• euq ity model boo k – i.e. companies ’ onw euq ity hw ere it is managed to earn a minimum target
return similar to interest ; and
• behaviouralised epx ected cash o� sw related to:
– core demand deposit liabilities ; and
– prepayable epx osures.
hT e PD also considers other aspects o f dynamic ris k management, including hedging
subb- enchmar k items, the use o f ris k limits and the roles o f transef r pricing and internal
uf ndingi� ndices.
Two application alternatives
hT e PD presents tow possible aw ys o f applying the PRA.
• Focus on dynamic risk management: Under this approach, the PRA ow uld apply to all
dynamically managed positions regardless o f hw ether they have been hedged.
• Focus on risk mitigation: hT e PRA ow uld apply only hw en the entity has undertaek n ris k
mitigation activities through hedging.
Mandatory or optional application
nO e o f the uq estions asek d in the PD aw s hw ether applying the PRA should be mandatory or
optional. eH dge accounting has historically been voluntary, so mandating the PRA of r dynamic ris k
management activities ow uld be a signic� ant change.
The feedback
hT e comment period of r the PD ended in cO tober. hT e oB ard received some 103 comment letters,
mainly rf om preparers in the n� ancial sector, regulators and accounting netow rsk . It plans to
analyse the ef edbac k in 1Q 2015.
Overall reaction
Although respondents generally agreed that the PD identie� d the accounting issues related to
the current hedge accounting model, there aw s some concern that the IA BS had gone beyond
the obej ctive o f hedge accounting in IFR S 9 and that the proposals – in particular the dynamic ris k
© 2015 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. 7
management scope alternative – could override the standards’ classic� ation and measurement
reuq irements, potentially resulting in changes to the measurement o f the entire banik ng boo,k
hw ich ow uld coni� ct iw th the business modela� ssessment.
Can risk management be fully captured by accounting?
Many respondents uq estioned hw ether ris k management activities are capable o f being uf lly
ree� cted in n� ancial statements and hw ether it is possible to develop a special accounting
approach that caters of r all possible ris k management practices. oS me encouraged the IA BS to
ree� ct on hw ether it is possible to develop a o‘ ne siez t� s all ’ solution.
Which application alternative is preferable?
hT e scoping o f the PRA is the critical af ctor in determining the impact o f the approach. Applying
the ris k mitigation approach ow uld limit the impact and stay true to the obej ctive o f the general
hedge accounting model. oH ew ver, applying the dynamic ris k management approach – hw ich
ow uld aef f ct all items included in the net open position, irrespective o f hw ether they have been
hedged – ow uld substantially increase the impact. Respondents generally did not support this
latter approach, noting that it ow uld override the classic� ation and measurement reuq irements o f
IFR S 9 and could lead to signic� ant volatility in prot� or loss ; they also uq estioned hw ether it ow uld
result in decisionu- seuf l inof rmation.
oH ew ver, some constituents noted that restricting the suggested approach in the PD to mitigating
ris k may trigger signic� ant operational burdens.
Disclosures
Although respondents generally supported additional disclosures in this area, many cautioned
against simply adding an additional layer o f disclosures on top o f hw at is already reuq ired. A
number o f respondents encouraged the IA BS to consider carrying out a uf ndamental revie w o f the
ris k disclosures o f IFR S 7 Financial Instruments: Disclosures to ensure that they better meet the
needs o f the users o f n� ancial statements.
What should the IASB do?
Many suggested that the IA BS consider scaling donw the proej ct to of cus on improvements
to IFR S .9 oS me noted that the aim o f the hedge accounting proej ct is to address mismatches
created by dief f rent accounting treatments and that the proej cts’ of cus should be to address such
mismatches.
Watch this space
Issuing the PD aw s the IAs’BS r� st step in this challenging proej ct to develop a solution to
concerns about the current hedge accounting models and ho w they interact iw th entities ’ dynamic
ris k management activities. hT e PD s’ proposals have not received iw despread support, and the
responses demonstrate that, in general, staek holders are looik ng more to ree� ct ris k mitigation in
n� ancial statements through a e� ix ble and voluntary hedge accounting model rather than af ir value
through prot� or loss accounting of r all hedged and unhedged open ris k positions.
nO e aw y of raw rd might be to of cus on amending the eix sting portof lio af ir value hedge o f interest
rate ris k model in IA S 93 to incorporate some o f the items discussed in the PD . In addition, there
may be similar changes that could be made to the general hedge accounting model in IFR 9 �S that
ow uld allo w an entity to better ree� ct dynamic ris k management.
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HOW DO YOU COMPARE? DISCLOSURES ABOUT
UNCONSOLIDATED STRUCTURED ENTITIES
Judgement IFR S 12 Disclosure of Interests in Other Entities came into of rce on 1 aJ nuary 2013 3 . It contains
the disclosure reuq irements of r entities that have interests in subsidiaries, oj int arrangements,
is required in
associates and unconsolidated structured entities. I‘ nterests ’ are iw dely den� ed as contractual
interpreting the
and nonc- ontractual involvement that epx oses one entity to variability o f returns rf om the other
requirements and entitys’ perof rmance.
determining the
uD ring the n� ancial crisis, it aw s perceived that there aw s a lac k o f transparency about the rissk
appropriate level
to hw ich a reporting entity is epx osed due to its involvement iw th structured entities. hT e IA BS
of detail. has addressed this issue by reuq iring specic� disclosure about interests in such entities, through
IFR1�S 2.
In this issue o f The Bank Statement, ew loo k at certain disclosures related to unconsolidated
structured entities in the n� ancial statements o f 10 bansk reporting under IFR.S iE ght o f the
n� ancial statements are of r 201 3 calendar years and tow of r the year to 13 cO tober 201.4 Although
the UE has deef rred the eef f ctive date o f IFR S 12 to 201,4 seven out o f the eight uE ropean bansk
included in our sample applied the standard in 201.3
What is a structured entity?
tS ructured entities are entities that are designed so that voting or similar rights are not the
dominant af ctor in deciding hw o controls the entity. tS ructured entities otf en have some or all o f
the of lloiw ng ef atures:
• restricted activities;
• a narro w and ew lld- en� ed obej ctive;
• insuc� f ient euq ity to permit the structured entity to n� ance its activities iw thout subordinated
n� ancial support ; and
• n� ancing in the of rm o f contractually linek d instruments issued to investors that create
concentrations o f credit or other rissk t( ranches.)
aB nsk otf en invest in or establish such entities to achieve specic� business purposes or to
af cilitate customer transactions – e.g. asset repacak ging, securitisation and asset management.
What disclosure is required?
hT e reuq ired disclosures aim to provide inof rmation to enable users o f n� ancial statements to
evaluate the of lloiw ng in respect o f an entitys’ interests in unconsolidated structured entities:
• the nature and etx ent o f those interests ; and
• the nature o,f and changes in, the rissk associated iw th those interests.
hT ese disclosures are also reuq ired about the entitys’ epx osure to ris k rf om involvement that it had
iw th unconsolidated structured entities in previous periods, even i f it no longer has any contractual
involvement iw th the structured entity at the reporting date. hT is includes specic� disclosures
about structured entities sponsored by the entity.
.3 T he UE postponed the eef f ctive date to 1 aJ nuary 201 4 but alloew d early application.
© 2015 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. 9
In this article, ew of cus on the of lloiw ng disclosure reuq irements, hw ich need particular
uj dgement.
Type of involvement Required disclosures
Interest in a structured entity held at the oH w the maix mum epx osure to loss rf om the
reporting date interest aw s determined
pS onsored structured entity in hw ich no oH w the entity has determined hw ich
interests are held at the reporting date structured entities it has sponsored
eW also loo k at ho w bansk have interpreted IFR S 12s’ guidance thatA “ n entity does not
necessarily have an interest in another entity solely because o f a typical customer supplier
4
relationship.”
Applying judgement
Determining maximum exposure to loss
Most bansk in our sample disclosed ho w they determined the maix mum epx osure arising rf om
their interests in unconsolidated entities. hT eir approach is summarised in the table belo.w
Type of interest Determination of maximum exposure
nO b- alance sheet items such as loans and aC rrying amount
securities
eD rivatives oN tional amount, carrying amount or both
Liuq idity af cilities Undranw amount disclosed in addition to the
dranw amount
rC edit enhancements such as guarantees Amount guaranteed
hT ree bansk in our sample made epx licit statements that certain derivative and other transactions
iw th unconsolidated structured entities ew re ecx luded rf om the disclosure o f maix mum epx osure
to loss. All three bansk ecx luded derivatives that introduced ris k or variability to the structured
entity rather than absorbed it. nO e ban k also ecx luded interest rate saw ps and of reign ecx hange
derivatives that are not comple x and epx osed the ban k to insignic� ant credit ris.k Additionally, one
uf rther ban k ecx luded insignic� ant epx osures – i.e. those in hw ich the ban k aw s epx osed to less
than 10 percent o f the unconsolidated structured entities ’ maix mum epx osure to loss.
nO e ban k stated that, ecx ept of r credit deaf ult saw ps, it aw s not possible to estimate the
maix mum epx osure to loss in respect o f derivative positions.
hT e chart belo w provides analysis o f the type o f uq antitative disclosures given by the bansk in our
sample in respect o f their maix mum epx osure to ris k of r derivatives. oS me bansk that disclosed
the carrying amounts o f derivatives did not epx licitly reef r to the amounts as being the maix mum
epx osures to loss.
.4 Appendi x A o f IFR S 12.
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