Negotiations between the Bank of Portugal and an unidentified buyer over the sale of Novo Banco have broken down, according to a BBC report. Novo Banco was set up in August last year after the Bank of Portugal led a €4.9 billion bailout of Banco Espirito Santo. The central bank said it would begin talks with another bidder. According to unconfirmed reports there were three bidders for Novo Banco: Anbang Insurance of China; Fosun International of China; and Apollo Global Management of the US. New accounting rules on dealing with potential bad loans could force Europe's top banks to recognise an extra €61.5 billion in loan losses, the Financial Times reports. Citing a report from analysts at Barclays, the FT says the rules could trigger an increase of about 34 per cent in loan loss provisions, as well as lower bank valuations and result in more volatile earnings. The UK's Local Authority Pension Fund Forum also weighed into the bank accounting debate, describing the new "expected loss" regime as "fundamentally flawed" and claiming it would not give a "true and fair" view of a bank's financial position Smaller banks in the UK are producing better returns, largely due to their lower cost-base, according to the Wall Street Journal. Using numbers crunched by KPMG, the WSJ says the smallest challenger banks showed an average return on equity of 18 per cent for 2014. The WSJ notes several advantages held by the small, new UK banks: a "benign" UK economy that is keeping bad debts very low; ability to specialise in lucrative niche market segments; their relatively cheap and simple operations that push cost to income ratios down and then allow further savings through offshoring; and no legacy of fines for bad behaviour, unlike their larger rivals. In an FT.com opinion piece, economist John Kay suggests that the ability most valued in the finance sector in the first decade of the 21st century was a keen appreciation of asset markets themselves, rather than the local knowledge and character of borrowers on which the old-fashioned bank manager might have based lending decisions as much as on figures. Kay argues use of mathematical models aimed at trading the secondary market in existing assets increased complexity for banks and elevated people with an overblown sense of their own competence in managing risks - and this plunged the global economy into the worst financial crisis since the Great Depression.