Investors ‘guessing’ over state of banks

Banks’ accounting practices have come under regulatory scrutiny following the financial crisis when a number of banks, whose accounts showed they were healthy, had to be rescued by taxpayers.

Policymakers are now trying to restore confidence in banks after the crisis so they can obtain more funding from investors rather than having to rely on central bank money.

Steven Maijoor, chairman of the European Securities and Markets Authority (ESMA), said a review of 39 unnamed major banks showed some improvements in accounting but that accompanying disclosures sometimes contradicted the main figures.

“Our general line is there should be more tailor-made disclosures to increase investor confidence in these banks,” Maijoor said.

Too often there was insufficient information on how a bank uses derivatives, instruments blamed for compounding the crisis, the ESMA study said.

Banks and their accountants are about to start preparing annual statements for 2013 according to mandatory book-keeping rules known as IFRS.

These statements can already run into hundreds of pages, a trend accounting regulators are trying to reverse by cracking down on ‘clutter’ and ‘boilerplate’ disclosures.

The 2013 annual statements will coincide with a review by regulators of bank balance sheets and stress tests of banks across the EU, which is likely to reveal capital shortfalls.