The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2020 Euromoney, a part of the Euromoney Institutional Investor PLC.
Opinion

Having your cake and provisioning for it: how CECL and IFRS 9 are fighting the last war

Accounting standards that make banks provision upfront for all expected loan losses are encouraging exactly what regulators don’t want to happen at this stage of the coronavirus crisis.

dollar-cake-biscuits-R-780.jpg

Here’s a little circle that seems to need squaring. Banks, pushed by regulators busy trying to avoid a repeat of the last credit crisis, have begun accounting for credit losses on the basis of what might be expected over the entire life of loans.

But now, in the middle of another crisis, regulators are telling banks that they should not be kitchen-sinking credit loss reserves for fear of cutting off the flow of credit to economies that desperately need all the help they can get.

Paul-Donofrio-2018-AfE-160x186

Paul Donofrio,
Bank of America

The problem is that you can’t do one without doing the other. As Bank of America CFO Paul Donofrio said in April to an analyst who wanted to know if the bank was likely to see credit loss provisions get worse as the year went on: “If we thought we were going to have to add more reserve build in the future, we would have put it into this quarter.


You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree