Loan loss calculation conundrum

Replacing the incurred loss provisioning model remains high on the agenda of accountants, bankers and regulators. The challenge is to find a way to calculate expected loss that satisfies the diverse objectives of all three camps. Can a compromise be reached?

The move to replace the incurred loss model for loan loss provisioning has created plenty of friction between accountants and regulators over the past year. Accounting standard-setters were pushed to draw up alternatives to a model that politicians and regulators accused of exacerbating swings in the economic cycle through late recognition of credit losses. Accountants insisted any new model should only reflect the financial position of a bank at a single point in time and should not be skewed