Impact assessment study on the most important differences between accounting standards used by banks in the banking union : executive summary.
Date: 2020-04-15
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union
Subjects: EU banking union, accounting, banking, credit institution, impact study, standardised accounting system

Impact assessment study on 
the most important 
differences between 
accounting standards used by 
banks in the banking union 

Executive summary 

Valdani, Vicari & Associati, Grimaldi Studio Legale, Spark Legal Network 
February 2020 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN COMMISSION 

Directorate-General for Financial Stability, Financial Services and Capital Markets 

Directorate B - Horizontal policies  

Unit B3 - Retail financial services 

European Commission 

B-1049 Brussels 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN COMMISSION 

Impact assessment study on 
the most important 
differences between 
accounting standards used by 
banks in the banking union 

Executive summary 

February 2020 

          EV-04-19-592-EN-N 

Directorate-General for Financial Stability, 
Financial Services and Capital Markets Union (FISMA)   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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Luxembourg: Publications Office of the European Union, 2020 

ISBN 978-92-76-10994-5 

doi:10.2874/81860 

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Reproduction is authorised provided the source is acknowledged. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impact Assessment Study on  
the most important differences between accounting standards used by banks in the Banking Union 

Abstract  

This study provides the European Commission (Directorate-General for Financial Stability, 
Financial  Services  and  Capital  Markets  Union,  DG  FISMA)  with  an  overview  of  the 
differences between national accounting standards (nGAAP) for credit institutions and the 
International  Financial  Reporting  Standards  (IFRS)  framework,  and  an  analysis  of  the 
potential impacts of those differences on prudential ratios.  

The study first analyses in detail how national accounting standards for credit institutions 
differ from the IFRS in ten of the nineteen Member States participating in the European 
Banking Union, which are those where banks are allowed to prepare financial statements 
using nGAAP.  

The study further collects data on the number and size of banks in these Member States 
reporting under nGAAP and the portion of banking assets accounted for under nGAAP. It 
analyses for three participating Member States (Austria, Belgium and Germany) whether 
and how these accounting standards could cause a material difference to four prudential 
ratios.  

The study concludes that: 

  Member States’ use of options to extend the scope of IFRS to banks has resulted 
in  very  wide  use  of  IFRS  within  the  European  Banking  Union.  Banks  that  use 
nGAAP for their financial statements are mostly small local retail banks. In nearly 
all  participating  Member  States,  the  proportion  of  total  banking  assets  reported 
under  nGAAP  is  less  than  5%  of  the  total  banking  assets,  with  the  exception  of 
Germany (52.1%) and Austria (22.7%).  

  Differences  between  nGAAP  and  IFRS  can  have  particularly  relevant  impacts  on 
accounting  for  financial  instruments  and  credit  risk  provisions.  Many  national 
accounting standards do not allow the recognition of fair value gains on financial 
instruments and base the credit risk provisions only on losses already incurred.  

  Even  where  differences  in  accounting  recognition  and  measurement  are 
significant,  the  case  studies  for  typical  nGAAP  banks  in  Austria,  Belgium,  and 
Germany  show  that  the  overall  impact  on  prudential  ratios  is  limited.  Moreover, 
either  national  accounting  frameworks  often  already  have  other  provisions,  such 
as general credit risk provisioning, that limit the impacts of accounting differences 
in practice or they are aligning nGAAP with IFRS.  

5 

 
 
 
EUROPEAN COMMISSION 

Executive summary 

This  report  summarises  the  results  of  the  Impact  Assessment  Study  on  the  most 
important differences between accounting standards used by banks in the Banking Union 
commissioned  by  the  Directorate-General  for  Financial  Stability,  Financial  Services  and 
Capital  Markets  Union  (DG  FISMA).  This  study  was  carried  out  by  Valdani  Vicari  & 
Associati, Grimaldi and Spark Legal Network. 

Objective and scope of the Study 

The  mandatory  application  of  IFRS  at  EU  level  is  limited  to  the  consolidated  financial 
statements of European companies whose securities are traded on a regulated market in 
the  EU.  For  credit  institutions  whose  securities  are  not  traded  on  a  regulated  market  in 
the EU, national accounting standards (nGAAP) regulations may foresee the use of IFRS 
or the use of national accounting rules, or an option to choose between the two.  

In  order  to  assess  whether  the  use  of  different  accounting  standards  might  have 
significant  impacts  on  prudential  ratios,  the  study  seeks  to  benchmark  the  different 
nGAAP vis-à-vis the EU-endorsed IFRS, and identify the most important differences and 
assess their potential impacts. 

It does this through: 

  an  overview  of  accounting  frameworks  applicable  to  each  Member  State 
participating  in  the  European  Banking  Union  (EBU).  This  overview  shows  which 
participating Member States have made the use of IFRS mandatory for all banks 
and  which  Member  States  have  used  the  options  in  the  EU’s  International 
Accounting  Standards  (IAS)  Regulation  to  allow  the  use  of  national  accounting 
rules; 

  an  overview  of  the  actual  use  by  banks  (credit  institutions)  of  the  respective 

national accounting frameworks applicable where IFRS is not mandatory; 

  an  analysis  of  the  main  differences  between  the  recognition,  measurement  and 
valuation  criteria  of  EU-endorsed  IFRS  and  Member  States’  bank  accounting 
standards  and  the  typical  impact  of  these  accounting  differences  on  balance 
sheets and on four prudential ratios (CET1 Capital Ratio, Leverage Ratio, Liquidity 
Coverage Ratio, Net Stable Funding Ratio). 

Approach and methodology 

The  first  step  in  the  study  was  to  map  the  accounting  frameworks  applicable  in  each 
Member  State  participating  in  the  Banking  Union  to  understand  whether  and  to  what 
extent  the  national  laws  and  standards applying  to  bank  accounting  differ from  the  EU-
endorsed  IFRS.  To  perform  this  task,  the  research  team  conducted  extensive  desk 
research  based  on  a  detailed  data  research  protocol  and  interviews  in  each  of  the 
participating Member States.  

This  led  the  study  to  focus  on  the  ten  participating  Member  States  where  EU-endorsed 
IFRS is not mandatory for banks not traded on a regulated market in the EU, i.e. Austria, 
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands and Spain.  

The study then developed an overview of the population of credit institutions in each of 
those  10  participating  Member  States  to  which  the  different  accounting  frameworks 
previously identified apply. To perform this task, the research team collected information 
through  desk  research  in  existing  databases,  with  inputs  from  interviews  with  national 
regulators and other experts used to overcome any data gaps. 

The data collection in the ten participating Member States where IFRS is not mandatory 
for  all  banks  focused  on  the  following  potential  areas  of  difference  in  accounting 
standards, which the desk research and the discussions with experts had concluded were 
those where relevant differences are to be found in accounting requirements:  

  Financial  Instruments  (IFRS  9):  Derivatives,  Classification  and  measurement, 

Recognition of expected credit losses; 
Intangible assets (IAS 38); 

 

Directorate-General for Financial Stability, Financial Services and Capital Markets 

EUROPEAN COMMISSION 

  Goodwill (IFRS 3); 
  Leasing (IFRS 16); 
  Transposition of Article 37 of the Bank Accounts Directive.1 

Three  participating  Member  States  (Austria,  Belgium  and  Germany)  were  selected  for 
case studies based on:  

 

 

the significance of differences between IFRS and nGAAP;  

the amount of banking assets/number of banks that apply nGAAP at consolidated 
or individual level; and 

  whether  the  competent  authority  requires  the  use  of  IFRS  for  supervisory 

reporting.  

The  case  studies  analyse  the  main  differences  between  the  recognition,  measurement 
and  valuation  criteria  of  EU-endorsed  IFRS  by  comparison  with    nGAAP  .  Based  on  this 
analysis, some estimates were made of the potential impacts of those differences on the 
CET1 Capital Ratio, the Leverage Ratio, the Liquidity Coverage Ratio and the Net Stable 
Funding  Ratio  as  defined  in  the  Capital  Requirements  Regulation  and  secondary 
legislation. Stakeholder interviews provided an insight into those potential impacts.  

In  addition,  based  on  the  published  accounts  of  different  banks  in  these  participating 
Member States, some model calculations into the impacts were made.  

Summary of the results 

Member  States’  use  of  options  to  extend  the  scope  of  IFRS  to  banks  has 
resulted  in  very  wide  use  of  IFRS  within  the  Banking  Union.  Regulation  (EC)  No 
1606/2002 allows EU Member States to opt to extend the use of IFRS beyond companies 
listed  on  a  regulated  market  in  the  EU  to  annual  financial  statements  of  non-listed 
companies  as  well.  As  a  result,  in  nine  participating  Member  States,  all  banks  are  now 
required  to  use  EU-endorsed  IFRS  (Cyprus,  Estonia,  Greece,  Latvia,  Lithuania,  Malta, 
Portugal, Slovakia and Slovenia).  

In most participating Member States where the use nGAAP for credit institution 
is  allowed  (Belgium,  Finland,  France,  Ireland,  Italy,  Luxembourg,  Netherlands 
and  Spain),  only  a  small  minority  of  banks  do  not  report  under  IFRS.  In  five  of 
the  10  participating  Member  States  analysed  in  detail  there  are  either  no  longer  any 
credit institutions reporting only under nGAAP (Italy, Finland, Luxembourg) or the nGAAP 
for  credit  institutions  are  IFRS-compliant  (Ireland  and  Spain).  In  Belgium,  France,  and 
Netherlands only a small number of banks report exclusively under nGAAP (<5% of Total 
Assets).  Those  banks  are  mainly  small  subsidiaries  of  foreign  banks  (France)  or 
specialised local credit institutions (Belgium and Netherlands). Austria and Germany are 
the  only  Member  States  with  a  significant  share  of  banks  reporting  exclusively  under 
nGAAP.  These  two  participating  Member  States  have  similar  banking  systems 
characterised  by  a  high  number  of  small  independent  credit  institutions  not  listed  on  a 
regulated  market  in  the  EU  and  reporting  under  nGAAP.  Those  banks  hold  a  significant 
proportion  of  national  banking  assets.  They  are  mainly  small  local  banks  and  marginal 
banking  groups,  together  with  the  saving  banks  (Sparkassen)  and  a  number  of 
cooperative banks (Volksbanken and Raiffeisenbanken).  

As of 2018, about 17.4%2 of the total assets in the EBU banking system, approximately 
EUR  4  880  billion,  are  reported  under  nGAAP  that  are  not  IFRS-compliant.  The  vast 

1 https://eur-lex.europa.eu/legal-content/GA/TXT/?uri=CELEX:31986L0635 

𝐴𝑚𝑜𝑢𝑛𝑡  𝑜𝑓 𝑎𝑠𝑠𝑒𝑡𝑠 𝑟𝑒𝑝𝑜𝑟𝑡𝑒𝑑 𝑜𝑛𝑙𝑦 𝑢𝑛𝑑𝑒𝑟 𝑁𝐺𝐴𝐴𝑃𝑠

2 % 𝑏𝑎𝑛𝑘 𝑎𝑠𝑠𝑒𝑡𝑠 𝑢𝑛𝑑𝑒𝑟 𝑁𝐺𝐴𝐴𝑃𝑠 =  
Total assets: EUR 27,998 bn as of 2018 – Consolidated Banking data – European Central Bank on the 19 EBU 
Member States. Total assets under nGAAP: EUR 4,880 bn estimate from various sources on the 19 participating 
Member States of the EBU. The estimate is based on a range of data of different types (consolidated and un-
consolidated) and referring to different time span (from 2016 to 2018). Thus, this estimate is subject to change 
if more detailed data become available. The 19 participating Member States are: AT, BE, CY, EL, EE, ES, FI, FR, 
DE, IE, IT, LV, LT, LU, MT, NL, PT, SK, SI 

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

.  

Directorate-General for Financial Stability, Financial Services and Capital Markets 

                                                 
EUROPEAN COMMISSION 

majority of these assets (88.5% of Total Assets of banks reporting only under nGAAP in 
the 19 participating Member States) are reported by German banks.  

This is illustrated in Table 1, which shows the amount of assets reporting under nGAAP in 
each of the relevant participating Member States. 

Table 1: Overview of banking assets reported under nGAAP 

Participating 
Member State 

Total assets  
in EUR billion 

ECB – 2018 
Consolidated Banking 
data3 

nGAAP (%) 

Total  Assets  of  banks 
reporting  only  under 
nGAAP  
in EUR billion 
Various  sources  2018  or 
earlier 

Austria 

Belgium 

Finland 

France 

Germany 

Ireland 

Italy 

Luxembourg 

Netherlands 

Spain 

All other EBU MS14 

986 

993 

800 

7,224 

7,104 

455 

2,635 

851 

2,455 

3,550 

946 

2244 

9.96 

0 

2037 

4,3209 

0 

0 

011 

123 

013 

0 

TOTAL 

27,998 

4,880 

Source: Contractors from various sources 

22.7%5 

1.0% 

0% 

2.1%8 

52.1%10 

0% 

0% 

0% 

5.0%12 

0% 

0% 

17.4%15 

It  is  worth  noting  that  most  of  the  banks  are  obliged  to  use  nGAAP  for  their  reports  at 
individual  company  level  for  the  purpose  of  tax  and  dividend  distribution.  This  means 
that  most  banks  reporting  under  IFRS  at  consolidated  level  will  have  additional  reports 
under nGAAP at the individual company level.  

The  differences  are  narrowing  due  to  the  “trickle-down  effect”  of  transposing 
IFRS  accounting  treatments  into  nGAAP.  The  detailed  analysis  of  the  nGAAP  in  the 
participating  Member  States  where  IFRS  is  not  mandatory  shows  that  not  only  has  the 
number of banks only applying nGAAP decreased over time, but the relevant differences 
between nGAAP and IFRS have also narrowed.  

There  are  many  examples  of  the  differences  between  nGAAP  and  the  IFRS  framework 
having  been  reduced  or  where  efforts  are  under  way  to  reduce  them,  especially  in  the 
two areas identified as most relevant (financial instruments and credit risk provisions). In 

3https://www.ecb.europa.eu/stats/supervisory_prudential_statistics/consolidated_banking_data/html/index.en.

html 

4 Austrian FMA – 2018 (as of Austrian FMA Annual Report 2018) 
5 EUR 224 bn total assets reported only under NGAAP [Austrian FMA]. EUR 986 bn total assets [Annual Report 
2018 – Austrian FMA] 
6 Total assets on 31/12/2018 based on the prudential reporting of the seven Banks reporting exclusively under 
nGAAP,  without  any  reporting  in  IFRS  for  the  prudential  reporting  in  EU.  EUR  9.9  bn  [NBB  National  Bank  of 
Belgium – 2019] 
7 ACPR Banque de France – 2016 
8 ACPR Banque de France – 2016 
9 Total assets of the institutions reporting only under German GAAP for prudential purposes, BaFin - 2018 
10  Based  on  BaFin  data.  EUR  4,320  bn  reported  only  under  nGAAP  [BaFin  –  2018].  Total  assets  (non-
consolidated) EUR 8,288 bn [Annual Report 2018 – BaFin] 
11 All credit institutions are reporting for prudential purposes to CSSF and ECB under IFRS 
12 Estimate - De Nederlandsche Bank – 2018 
13 In Spain nGAAP for credit institutions are IFRS-compliant 
14  9  participating  Member  States  (Cyprus,  Estonia,  Greece,  Latvia,  Lithuania,  Malta,  Portugal,  Slovakia  and 

Slovenia) where all banks are required to use EU-endorsed IFRS  

15 See footnote 2 

Directorate-General for Financial Stability, Financial Services and Capital Markets 

 
                                                 
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many cases, the recognition of expected losses in credit provisions has been introduced 
in nGAAP. Examples are Ireland and Spain. They have introduced the expected credit risk 
model,  albeit  Spain  has  retained  a  conservative  approach  on  accounting  for  expected 
losses. Similar proposals are under discussion in Austria and Germany.  

Some  relevant  differences  remain.  The  relevant  accounting  differences  with  nGAAP, 
in  both  recognition  and  measurement  (valuation)  identified  in  the  study  were  classified 
into six selected elements, namely recognition and measurement of financial instruments 
(including derivatives and credit risk provisions), leasing, intangibles and goodwill. These 
elements  are  covered  by  IFRS  9  (Financial  Instruments),  IAS  38  (Intangible  Assets), 
IFRS 3 (Business Combinations) and IFRS 16 (Leases) . In addition, the transposition of 
the option provided by Article 37 of the Bank Accounts Directive (BAD) was examined for 
the relevant Member States.  

The major differences are summarised in Table 2:  

Table 2: Overview of accounting differences between IFRS and nGAAP 

Area  of  differences 
between  IFRS  and 
nGAAP  

Member  States 
with  significant 
observed 
differences  

Member  States 
without 
significant 
observed 
differences  

Nature of observed differences  

nGAAP compared to IFRS 

Financial 
instruments - 
Classification and 
measurement (IFRS 
9) 

AT, BE FR, DE, IE, 
IT, LU, NL 

ES, FI 

Derivatives (IFRS 9)  AT,  BE,  DE,  IE, 

ES, FI  

Recognition of 
expected credit 
losses (IFRS 9) 

FR, IT, LU, NL  

AT,  BE,  DE,  ES, 
IE, IT, NL, ES 

FI, FR, LU 

Intangible assets 
(IAS 38) 

AT, BE, DE, FI, FR, 
IE, IT, LU   

ES, NL 

Goodwill (IFRS 3) 

AT, BE, DE, FI, FR, 
IE, IT, LU, NL 

ES 

Leasing (IFRS 16) 

AT, BE, DE, FI, FR, 
IE, IT, LU 

ES, NL  

Transposition of Art 
37 of the Bank 
Accounts Directive 

FR, ES, IT, IE, NL   AT, BE, DE, FI, LU 

Source: Contractors from various sources 

No  FVOCI,  use  of  LCM,  use  of 
historic 
the 
investment performance. 

perspective 

of 

Use 
impairment/amortisation model 

historic 

cost 

of 

and 

Three-stage  approach  not 
fully 
followed. Incurred loss model rather 
than expected loss model 

Only  useful  finite  life  is  recognised 
and maximum amortization over ten 
years  

Maximum  amortisation  over 
years, only if externally acquired.  

ten 

No  right-of-use  assets.  Accounting 
to 
at  historical  costs  according 
is 
(asset 
ownership 
accounted by the lessor) 

structure 

Article 37 BAD is optional. However, 
some  participating  MS  do  not 
provide for lower value of loans and 
advances with value adjustments    

Only  some  accounting  differences  may  affect  balance  sheets  significantly:  The 
accounting  differences  identified  may  influence  the  balance  sheets  of  banks  in  the 
following ways:  

  Financial  instruments  (debt  and  equity  instruments)  and  derivatives: 
Many nGAAP do not provide for the forward-looking information approach typical 
of IFRS 9. They very often differentiate between assets held for long- and short-
term use and assets held for trading, with nGAAP in some cases putting limits on 
the  fair  value  valuation  of  assets  held  for  long-term  use.  nGAAP  often  use  the 
principle  of  the  ‘lower  cost  or  market  approach’,  meaning  losses  of  these  assets 
are  recognised  but  gains  are  not.  This  means  that  the  capital  recognised  under 
IFRS  might  be  higher  than  in  nGAAP,  especially  at  the  end  of  a  boom,  while  it 
might  be  lower  or  at  the  same  level  towards  the  end  of  a  bust.  In  the  case 
studies,  the  potential  effect  of  the  different  accounting  of  financial  instruments 

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would be positive in terms of book value on the balance sheet and recognition of 
unrealised gains. The impacts on debt and equity instruments would be reflected 
by Capital and Leverage Ratios at a consistently higher level than under nGAAP.  

  Recognition  of  expected  credit  losses:  In  nGAAP,  there  is  sometimes  a  time 
limit  for  expected  losses  to  be  taken  into  account  (Belgium).  In  other  Member 
States, only expected losses with robust statistical evidence (Austria, Germany or 
Ireland) or only expected losses with a specific trigger event (Netherlands) can be 
taken  into  account  for  credit  risk  provisions.  Credit  risk  provisions  under  IFRS 
accounting may therefore be higher once expected losses are taken into account. 
The  quantitative  assessment  tested  the  potential  impacts  of  applying  the  higher 
provisioning  under  IFRS  9:  in  all  the  case  studies  analysed,  the  Capital  and 
Leverage Ratios stayed well above  the regulatory minimum. This is a function of 
the  low  risk  nature  of  the  credits  of  the  banks  analysed;  credit  risk  provisions 
were not a very significant position in their balance sheets. 

  Intangible assets and goodwill: Many nGAAP are more restrictive than IFRS in 
the recognition of intangible assets and goodwill. This leads to a lower value being 
recognised  in  the  balance  sheets  of  banks  using  nGAAP.  However,  especially  for 
small  banks  using  nGAAP,  these  asset  classes  were  not  thought  to  be  important 
enough  to  make  a  significant  difference.  All  the  examples  analysed  in  the  three 
case studies confirmed this assessment.  

  Leasing:  Many  nGAAP  do  not  foresee  any  right-of-use  assets,  meaning  that 
leases are not accounted for on the balance sheets of the lessee even if all risks 
and rights are taken over by the lessee. This is of little relevance due to the small 
size of those assets in the overall balance sheet of the banks analysed in this case 
study  (mainly  IT  equipment  leases).  The  impact  on  the  prudential  ratios  is 
additionally limited by the obligation on the banks to include off-balance positions 
in the calculation of the prudential ratios.  

The  overall  impact  of  the  accounting  differences  identified  on  the  prudential  ratios 
depends on which asset and debt categories affected by the accounting differences form 
part of the respective ratios and which not. Table 3 therefore sets out the components of 
the  four  prudential  ratios  and  the  way  in  which  they  might  be  affected  by  the  set  of 
accounting differences identified.  

The results are summarised in Table 3. 

Table 3: Overview on impact of asset categories on the prudential ratios  

CET1 Capital Ratio 

Leverage Ratio 

Liquidity 
Coverage Ratio 

Net Stable 
Funding Ratio 

Asset 
category 

Financial 
instruments 
- equity and 
debt 
instruments 

𝑪𝑬𝑻𝟏 𝑪𝒂𝒑𝒊𝒕𝒂𝒍 
𝑹𝒊𝒔𝒌 − 𝒘𝒆𝒊𝒈𝒉𝒕𝒆𝒅 𝒂𝒔𝒔𝒆𝒕𝒔 

𝑻𝒊𝒆𝒓 𝟏 𝑪𝒂𝒑𝒊𝒕𝒂𝒍 
𝑻𝒐𝒕𝒂𝒍 𝑬𝒙𝒑𝒐𝒔𝒖𝒓𝒆𝒔 

𝑯𝒊𝒈𝒉𝒍𝒚 𝒍𝒊𝒒𝒖𝒊𝒅 𝒂𝒔𝒔𝒆𝒕𝒔
𝑳𝒊𝒒𝒖𝒊𝒅𝒊𝒕𝒚 𝒓𝒆𝒒𝒖𝒊𝒓𝒆𝒎𝒆𝒏𝒕𝒔 

𝑨𝒗𝒂𝒊𝒍𝒂𝒃𝒍𝒆 𝒔𝒕𝒂𝒃𝒍𝒆 𝒇𝒖𝒏𝒅𝒊𝒏𝒈
𝑹𝒆𝒒𝒖𝒊𝒓𝒆𝒅 𝒔𝒕𝒂𝒃𝒍𝒆 𝒇𝒖𝒏𝒅𝒊𝒏𝒈 

Not relevant as 
market value is 
required for the 
liquid assets 

Increases/decreases 
in value affect: 

Increases/decreases 
in value affect: 

- CET1 Capital 
(increase/decrease 
in retained 
earnings) 

- Tier 1 Capital 
(increase/decrease 
in retained 
earnings) 

- Risk-weighted 
assets (increase/ 
decrease in value of 
asset according to 
risk weight) 

- Total assets 
(increase/decrease 
in the value of 
exposures) 

Increases/ 
decreases in value 
have no relevant 
impact: 

- Required stable 
funding 
(increase/decrease 
in book value of 
assets) 

-available stable 
funding (increase / 
decrease own 
funds) 

Directorate-General for Financial Stability, Financial Services and Capital Markets 

 
 
 
 
 
 
EUROPEAN COMMISSION 

Asset 
category 

Derivatives 

CET1 Capital Ratio 

Leverage Ratio 

Liquidity 
Coverage Ratio 

Net Stable 
Funding Ratio 

𝑪𝑬𝑻𝟏 𝑪𝒂𝒑𝒊𝒕𝒂𝒍 
𝑹𝒊𝒔𝒌 − 𝒘𝒆𝒊𝒈𝒉𝒕𝒆𝒅 𝒂𝒔𝒔𝒆𝒕𝒔 

𝑻𝒊𝒆𝒓 𝟏 𝑪𝒂𝒑𝒊𝒕𝒂𝒍 
𝑻𝒐𝒕𝒂𝒍 𝑬𝒙𝒑𝒐𝒔𝒖𝒓𝒆𝒔 

𝑯𝒊𝒈𝒉𝒍𝒚 𝒍𝒊𝒒𝒖𝒊𝒅 𝒂𝒔𝒔𝒆𝒕𝒔
𝑳𝒊𝒒𝒖𝒊𝒅𝒊𝒕𝒚 𝒓𝒆𝒒𝒖𝒊𝒓𝒆𝒎𝒆𝒏𝒕𝒔 

𝑨𝒗𝒂𝒊𝒍𝒂𝒃𝒍𝒆 𝒔𝒕𝒂𝒃𝒍𝒆 𝒇𝒖𝒏𝒅𝒊𝒏𝒈
𝑹𝒆𝒒𝒖𝒊𝒓𝒆𝒅 𝒔𝒕𝒂𝒃𝒍𝒆 𝒇𝒖𝒏𝒅𝒊𝒏𝒈 

Increases/decreases 
in value affect: 

Increases/decreases 
in value affect: 

- CET1 Capital 
(increase/decrease 
in retained 
earnings) 

- Tier 1 Capital 
(increase/decrease 
in retained 
earnings) 

Not relevant as 
market value is 
required for the 
liquid assets 

No relevant impact 

Recognition 
of expected 
credit 
losses 

- Risk-weighted 
assets 
(increase/decrease 
in value of asset 
according to risk 
weight) 

-  Total assets 
(increase/decrease 
in the value of 
exposures) 

Increases/decreases 
in amount of credit 
provisions affect: 

Increases/decreases 
in amount of credit 
provisions affect: 

- CET1 Capital 
(decrease/increase 
in retained 
earnings) 

- Tier 1 Capital 
(decrease/increase 
in retained 
earnings) 

- Risk-weighted 
assets 
(decrease/increase 
in value of asset 
according to risk 
weight) 

- Total assets 
(decrease/increase 
in the value of 
exposures) 

Intangibles  Generally not 

affected since it is 
deducted from CET1 

Goodwill 

Generally not 
affected since it is 
deducted from CET1 

Generally 
not 
affected  since  it  is 
deducted 
from 
exposure  measure 
and Tier 1 Capital 

Generally not 
affected since it is 
deducted from 
exposure measure 
and Tier 1 Capital 

Leasing 

Increases/decreases 
in book value: 

Increases/decreases 
in book value: 

- higher amount of 
risk-weighted assets 
recognised 
(increase/decrease 
in value of asset 
according to risk 
weight)16 

- higher amount of 
Risk-weighted 
assets recognised 
(increase/decrease 
in value of 
exposures)17 

Source: Contractors from various sources and CRR 

Not relevant as 
market value is 
required for the 
liquid assets  

No relevant impact 

No effect because it 
is not a highly liquid 
asset 

No relevant impact 

No effect because it 
is not a highly liquid 
asset 

No relevant impact 

No effect as the 
ROU is not part of 
the liquidity buffer 

No relevant impact 

However,  it  is  worth  noting  that  in  some  instances  the  requirements  for  prudential 
reporting  already  reflect  the  differences  between  IFRS  and  nGAAP  and  oblige  credit 
institutions  to  provide  comparable  numbers.  One  example,  which  is  mentioned  above, 
would be the inclusion of off-balance leasing contracts in the prudential reporting. 

The  impact  on  prudential  ratios  varies  significantly.  The  impact  on  the  prudential 
ratios  of  the  differences  identified  is  as  individual  as  the  impact  on  the  balance  sheets. 

16 Assuming on the lessee side that depreciation and the rental fee would have the same book value (thus not 

affecting P/L) 

17 Assuming on the lessee side that depreciation and the rental fee would have the same book value (thus not 

affecting P/L) 

Directorate-General for Financial Stability, Financial Services and Capital Markets 

 
 
 
 
 
 
                                                 
EUROPEAN COMMISSION 

Wherever  there  is  a  difference  in  recognition  or  measurement,  there  may  be  an  impact 
on the four ratios, but in very different ways.  

  CET1  Capital  Ratio:  The  quantitative  assessment  on  relevant  examples  shows 
that  only  the  accounting  difference  for  derivatives,  financial  instruments  and 
credit  risk  provisioning  can  have  a  relevant  impact  on  this  Capital  Ratio.  In  the 
sample calculations, the estimated impacts of the differences in derivatives, debt 
and equity instruments led to higher ratios under IFRS (from a marginal increase 
to  an  increase  of  as  much  as  500  basis  points).  The  sample  calculation  of  lower 
credit  risk  provisioning  under  nGAAP  led  to  lower  ratios  under  IFRS  (-300  basis 
points). 

  Leverage Ratio: The direction and logic of impacts are the same as for the CET1 
Capital Ratio, while the magnitude of change, at least in absolute terms, is lower, 
since  the  exposures  are  unweighted  and  the  overall  amount  of  Tier  1  Capital  is 
larger (or the same) as the CET1 Capital used in the CET1 Capital Ratio. 

  Liquidity  Coverage  Ratio  is  probably  not  affected  by  the  differences  identified 

as all the liquid assets relevant for this ratio are measured at market value. 

  Net  Stable  Funding  Ratio:  Overall,  there  should  not  be  a  material  impact. 
Accounting differences identified could increase or decrease the required funding. 
However,  this  increase  or  decrease  in  asset  value  is  mirrored  by  an  increase  in 
accounting  equity  (100%  available  funding)  which  would  net  out  the  the  impact 
on required funding.  

The  impacts  will  also  differ  depending  on  economic  conditions.  The  two  areas 
where  the  accounting  differences  are  the  most  significant  (financial  instruments  and 
credit  provisions)  are  both  strongly  linked  to  the  business  cycle.  The  differences  will  be 
most  pronounced  when  the  business  cycle  turns.  In  the  area  of  credit  risk  provisions 
nGAAP  will  recognise  losses  at  a  later  stage  and  in  good  times,  increasing  the  risk  of  a 
‘cliff effect’ in an economic downturn.  

Overall, the analysis developed in this report has shown that the impacts of the 
differences  between  nGAAP  and  IFRS  principles  are  limited  to  a  few  Member 
States.  Furthermore,  the  differences  have  decreased  over  time  due  to  the 
“trickle-down” effect of IFRS on nGAAP. Any relevant potential impacts on prudential 
ratios are limited to Austria and Germany (the only two participating Member States with 
a  significant  degree  of  reporting  under  nGAAP)  and  to  the  accounting  treatment  of 
financial  instruments  and  credit  risk  provision.  The  case  studies  show  that  there  is  an 
overall limited impact on prudential ratios.  

Directorate-General for Financial Stability, Financial Services and Capital Markets 

 
 
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         doi:10.2874/81860 
         ISBN 978-92-76-10994-5