Both international and U.S. accounting-standards setters have adopted requirements altering the requirements for loan-loss reserving from the pre-crisis “incurred” approach to one based on “expected” loss.  Although the IASB approach is more generous to financial institutions than the FASB’s current ECL (CECL) standards, both accounting rules require earlier recognition of potential credit risk in the allowance for loan and lease losses (ALLL) called provisions by global regulators.  ALLL increases lower a bank’s capital ratio in ways that could be very costly to non-U.S. banks facing near-term international changes and thus further depress credit availability.  Basel does not believe ECL accounting is as challenging in the U.S. despite the more stringent nature of both FASB’s rules and U.S. capital requirements, and it is also fearful that the earlier deadline for IASB compliance would put non-U.S. banks at a competitive disadvantage.  As a result, Basel is proposing during an interim period to retain current capital rules governing ALLL to prevent near-term capital shocks.

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