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There is a heck of a lot in this, so I have split this into two posts – one on the exposure draft (ED) on amortised cost (AC) and impairment and one on the (now released) “final” standard on classification and measurement – which is also long and will take a day or so. If you want to know why that is in scare quotes, go there when it appears.
As you can tell from the title, this is the one on amortised cost and impairment.
To read what the IASB has to say on this, go here for the press release and here for the content. As previously advised, I would suggest sticking to the basis for conclusions (BCs) as they are more readable, but if you want to submit a comment, you will need the exposure draft.
Having now read this a couple of times and listened to the webcast, I am still uncertain in a number of areas. I think this is going to take some work over the next couple of weeks to get sorted out and then the (now) three years’ implementation period to get roughly right.
That’s right – three years. As part of the release of this section the Board said that the earliest date for mandatory adoption will be 1 January 2013 – with early adoption permitted. This is apparently as they realise the complexity of this (I feel like saying no and a certain four letter word at this point) and to align with the prospective new insurance contracts standard. It may even be delayed past 2013 if that standard is delayed. In the webcast to night they were at pains to say they did not want to have insurance companies unduly inconvenienced by having a double change of standards.
I will work through the ED in the order in the BCs as I have advised reading those. Where there is something in the ED that I find interesting I will cover it even if it is not mentioned in the BCs. Read the rest of this entry »
Putting together a blog cavalcade was an interesting task – and one that took a fair bit longer than I expected. Not, I might add, because it was a painful one, but because there was so much to read and so much that I had not covered – focussing as I do on banking with the occasional foray into insurance along with the occasional amateur foray into economics.
The quantity of posts on health that were submitted was interesting. Living in Australia the issue of health insurance is not a big one. The idea of being bound to an employer’s health plan is an interesting one, so the issues that arise from this – in particular where the employer has to choose a plan caused me to think carefully. While this post read a little like an advertisement for “Best Doctors” I did have to stop and think.
Being a little late, as I am, in posting this at least let me look at the latest stff out there. One post from the Cav’s organiser (Henry Stern) just popped up with a question about the US health system and where it is headed. Given how much you guys in the States are paying I am not surprised you are looking at alternatives, but, to (hopefully correctly) paraphrase where Henry is going, just because you need a change and that what is proposed is a change does not necessarily mean that the change that is proposed should be adopted.
To go with the slightly Australian flavour, though I should note a recent controversy over here – whether midwives should be able to attend home births and be covered by insurance for doing so. To me, it flows on to the question in the next section – whether perceptions of risk become the guiding methodology, rather than the facts of the matter. This is backed up by a piece from Colorado on home births.
I found this post, while short, on risk response to be interesting – why do we sometimes respond to risk in an illogical way, taking the “safe route” rather than the one that is more likely to give the desired outcome? Perceptions of risk are often, but not always, wildly different to the actuality.
One of the warnings I received on agreeing to do the Cav was against posts on credit cards. Sorry – but I will have to make one exception. This one talks about the popularity of credit card default insurance – and why you probably do not need it. This has always been my perception of this type of insurance, so I thought it should be added to.
The TARP bailout has been fairly big news all around the world, with the US government pumping huge funds into the banks. I have always been a skeptic on this sort of action, but some hard data can cause me to rethink. I am not persuaded as yet, though.
One possible option for the future was canvassed on BankWatch – make the banks a lot safer than the current ones. I am not sure exactly how to enforce it, but it is a good thought.
To get through all this, some general advice is sometimes handy – this post gives some very general advice on possible strategies. I particularly liked the last one on sorting out an exit strategy. It is always a good idea to have a backstop. More advice comes from the Digerati Life – and again, the last one is the money quote. If you are thinking of trading it is worth a read.
I can’t leave without giving a little plug to one of my favourite bloggers in Kenya – Bankelele. His series on the use of mobile phones to make payments in Kenya has been very interesting.
Given this is a risk cavalcade, I was surprised that there was so little (read: nothing) on general or life insurance submitted. Other than health insurance, there does not seem to be a lot out there. Perhaps readers can direct me to some useful ones in comments? Perhaps a brief look at an alternative may help.
To sum up – thanks to Hank for the oppotunity to do this. It was certainly interesting.
This is a guest post by Jennifer Lang. It provides the background behind a presentation on economic capital which is being made to the Institute of Actuaries of Australia’s Biennial Convention
How and why should we measure it?
Economic capital means different things to different people. But for this presentation, the purpose of economic capital is to assist companies in appropriately measuring the rate of return a company is getting in proportion to the risk it is taking.
Economic capital is not:
- Regulatory capital – regulatory capital is the amount of capital a regulator has determined an institution needs to hold, but is generally not as specific to the institution as economic capital would be. The capital for particular risks would be calculated more broadly, and the definition of risk would be a systemic one, rather than an institutional one.
- Value of the organisation – the value of an organisation (in the long term) should be the discounted value of future distributable profits. There is no reason for economic capital (which is a measure of extreme risk) and discounted value of future profits to have any defined relationship. Companies should, however, be earning adequate return on the capital they hold – the purpose of economic capital is to help them work out what that return should be.
- A capital resource – economic capital measures a capital requirement, not how much capital a company might have available. Net assets (below) are a capital resource
In working out what to do with economic capital, the capital
resources available to the company can include net assets, future value
of profits, and some other assets which may not be recognised for
accounting purposes. On the flip side, some accounting assets (such as
the goodwill paid for a recent acquisition) may be valueless in an
economic capital scenario.
Read the rest of this entry »
As the Basel II process beds down it looks like it is the insurance world that is next. The replacement of Solvency I (as it is now known) by Solvency II has been set down for 2012 in the EU, with the expectation that it will be broadly followed elsewhere.
We can only hope for two things:
- They will come up with a better name for it (it lacks the ring that even a
fairly boringtown in Switzerland can bring it); and
- The US will not cock it up as badly as they have Basel II.
I know that, unlike Basel, there is no real global need to follow Solvency II, but given the globalized structure of the industry, something like this is inevitable.
I cannot claim to be too aware of insurance issues, so I will not try to pretend – but if you want to vent your own spleen or discuss the issue, go ahead.
This is a reprint of an article published in Business Islamica Magazine
Since the first large-scale Muslim migration to Australia occurred in the early 1970s, the Islamic community has grown from just a few thousand, concentrated in the suburbs of Melbourne, to become the second-largest religious group in Australia. Substantial migration to Australia was initially from Lebanon, with other notable immigration coming from many Muslim countries, including Indonesia, Bangladesh, Egypt, the Palestinian territories and, more recently, Afghanistan and Iraq.
The number of Australian residents identifying themselves as Muslim on the census increased by over 40 percent in the five years between 1996 and 2001, from 200,000 to 281,000. This growth has continued, to the point where the estimated number of Muslims in Australia was 350,000 in late 2006. Read the rest of this entry »
ASIC (the Australian companies regulator) is commencing a review of the EFT Code of Conduct – the code that governs the way banks and other deposit takers interact with their customers when they are using electronic means to communicate with their customers. This includes such areas as internet banking and the use of credit and debit cards – but only where they are being used by consumers, not businesses. Bank / business interactions are currently effectively unregulated, but, in practice, for small businesses the banks follow the Code for the most part.
The scope of the review is, from the media release:
- liability issues arising from the growth and growing sophistication of Internet fraud;
- regulation of alternative payment facilities;
- coverage issues, including whether the protections of the Code should extend to small business as well as consumer account holders;
- obligations around mistaken payments;
- administrative arrangements associated with the EFT Code, including compliance monitoring and ASIC’s role as Code administrator; and
- other more specific issues raised by stakeholders in preliminary consultations.
The big one here is obviously the first. The issue here is who pays when a fraudster manages to clean out your account? At present, it is the bank that pays – and then passes the costs on to its customers and shareholders. In practice, what this means is that those of us who do not fall victim to internet fraud pay for those who do. Is this right and fair? Read the rest of this entry »
APRA today announced that the start date for their revised outsouring approach (discussed here) would be pushed back from 1 January 2007 to 1 April 2007. For details, see here (banks), here (general insurance) or here (life assurance).
Why is this? APRA do not seem to say, but my best guess is that the insurers are not ready and were not going to be in a position to state that their existing outsourcing arrangements were in “general compliance” with the new standards. For the banks, this is unlikely, given the paucity of the changes, but, as the application to the insurers is new, this was always going to be a big step.
If anyone would like to let me know otherwise, please do.
Thanks to Bruce for the information on the release of the new FSA Prudential sourcebooks on 25 October. Access to them can be gained here. The actual instruments go under the rather glamourous names of GENPRU and BIPRU. GENPRU is, as the name suggests, general prudential requirements and so apply across the industry and BIPRU apply only to those known, in Australia, as ADIs (Authorised Deposit-taking Institutions).
They are 227 pages and 709 pages long respectively – so I would only download them over a fast internet connection and even then only if you need to.
That said – on a quick look they seem to have used the huge weight of paper well. The BIPRU gives good, clear examples of who regulates who in a multinational banking conglomerate, giving some clarity over the home / host issues and, as Bruce said, it looks like it is a clearer read.
I will probably wait until tonight to print them out though and do not expect a thorough summary any time soon.
Just a quick note on the almost equally quick Senate enquiry on the anti-money laudering / counter-terrorism financing bill currently before the Senate. If you want to make a submission, you only have a few days left – go here.
Submissions from the original draft have been carried over with the revived sittings concentrating on the changes between this one and the previous exposure drafts. Submissions need to be in by 17 November.
This post covers the Islamic rules on trading, with a focus on what deals are permissible (“Halal“) or forbidden (“Haram“). These rules apply to any market or other types of trading and, I feel, are general enough that trading in shares, derivatives, insurance and other forms of risk are covered.
The major difference between a normal, Western, financial market and that of a Halal market is the prohibition on trading in risk, so a discussion of the detail of this, and the disagreements between the various schools of Islamic jurisprudence is the first subject to be covered.
This is the third in a series on Islamic banking. There is some overlap between this and other parts of the series, but as each is designed to stand alone I hope you do not mind the repetition. Read the rest of this entry »