Many banks in the European Union choose not to use an eased accounting rule which the bloc's leaders had said was urgently needed to help stabilise rocky markets, a survey by regulators showed on Wednesday. The EU forced accounting rule setter, the International Accounting Standards Board, to ease a fair-value standard blamed by many policymakers for exacerbating the credit crunch by forcing banks to take crippling writedowns.
The eased fair-value or mark-to-market rule allows companies to reclassify certain types of assets so they no longer have to be valued at current depressed market prices. The change was rushed through in October in time for third quarter earnings statements. Its application is optional for companies.
Deutsche Bank AG was able to report much better than expected third-quarter pretax profit and net income largely due to using the eased accounting rule. Yet the Committee of European Securities Regulators or CESR, which groups market watchdogs from the EU's 27 member states, said a majority of financial firms it analysed had not used the rule.
"The analysis shows that more than half of the financial companies concerned did not reclassify any financial instruments for the third quarter of 2008," CESR said in a statement. Big blue chip companies were particularly reluctant.
"For the companies that are part of the FTSE Eurotop 100 index, almost two-thirds ... did not reclassify any financial instruments in any of the categories," CESR said in a statement.
Only 20 percent of the all financial companies analysed by CESR had reclassified financial instruments. The survey of 21 EU states found 52 companies did not reclassify any assets, 28 reclassified one category of assets and 11 reclassified two categories.
"CESR would encourage issuers to consider carefully the disclosures they make regarding the reclassification choices they exercise in the year end financial statements," the regulatory group said. Critics have said the rule muddies the picture for investors and European Commission officials have said privately they did not expect all financial firms to opt for the eased rule.