Conservative MP Steve Baker has backed calls for Royal Bank of Scotland to explain its accounting methods after discrepancies emerged concerning the bank’s capital position.
Cobden Partners, an advice service for governments dealing with banking crises, says the asset protection scheme’s 2009/10 accounts show that the APS insures £282bn of the bank’s £1.4tn-worth of assets. Its expec-ted loss on that £282bn is £57bn.
But RBS’s own accounts for the 12 months to December 31, 2010, show a deduction from capital in respect of expected losses on the entire £1.4tn of assets of just £32bn – a difference of £25bn.
Cobden Partners founder Gordon Kerr has written to RBS, raising concerns about the implications of the internat-ional financial reporting standards, which RBS adheres to.
He says the IFRS’s “backwardlooking model” means RBS has not taken into account money it could lose on impaired loans in future, leading to an underestimation of exposure and inadequate core tier one capital reserves.
Wycombe MP Baker, who has backed the letter, says: “The RBS predicament is just one example of the confusion the IFRS seems to produce. It concerns not one bank but the whole system of bank accounting.”
An RBS spokesman says: “RBS is fully compliant with IFRS.”
In January, Baker brought forward a private member’s bill which intends to see banks ret-urn to generally accepted acc-ounting principles, which take into account future possible losses. The principles were in place before the IFRS rules were introduced in 2005 and the bill intends to see the two standards used alongside each other.
Baker says: “We all deserve the right to read a true and fair view of the financial position of banks.”