Loan loss dynamics

The International Accounting Standards Board unveiled a new expected loss approach in November, following criticisms of the current incurred loss model. But European regulators have declared their preference for dynamic provisioning – and have even threatened to mandate such an approach if the accounting bodies do not introduce it themselves. Which side will blink first? By Duncan Wood

When leaders of the Group of 20 countries met in London at the start of April, one of their chief concerns was pro-cyclicality – an array of forces that served to magnify the severity of the financial crisis. They arrived at the meeting armed with a report from the Financial Stability Board (FSB) blaming loan-loss accounting for part of the problem and calling for new standards to recognise losses earlier and thereby dampen down future crises. The G-20 endorsed that call, and after seven months