As a consequence of global crisis on financial markets, the banks’ solvency ratios have become an issue of common interest. The operations of banks are strictly regulated, yet still, amendments to the regulations are being made, due to the problems observed during the financial crisis. The aim of this study is to examine what are the effects of the International Financial Reporting Standards (IFRS) and new Capital Accord (Basel 2) on solvency of retail banks during economic downturn.

The research was based on the reports of five banks operating in Finland. Based on the research, implementation of the new Capital Accord had the biggest impact on the solvency ratios. In addition, increased credit risk, impairments from credits and losses arising from changes in the fair value of financial assets all had an effect on solvency ratios according to research proposition, yet there were major differences between different banks.