Abstract

Risk Safeguards by Way of Reserves for Credit Losses and Interest Rate Changes

The only slight restriction of the permissibility of undisclosed reserves provided for in the first proposal of the EC Commission for a banking guideline gives occasion to examine the forms of special risk safeguards in banking and the possible manner of showing them in the accounts. The credit loss and interest rate risks that have to be offset over long periods and are of a significant magnitude for banks are currently taken into account by more or less overall allowances in the determination and application of surpluses; in conventional financial statements of banks they are not shown in a manner in keeping with their importance. Reserves for credit losses and interest-rate risks are therefore proposed. Their allocation and withdrawal can be effected in a risk-consonant, objective-oriented manner with standardized specifications which prelude individual, subjective judgment. Appropriate rules enable function-dependent risk safeguards, the presentation of which in the annual financial statement combines aspects of both static and dynamic balance-sheet theory.