The Financial Times reported, according to the chairman of the IASB, that banks could be deterred from lending under a new approach to bad loan provisioning being developed in the U.S.

In a speech delivered at a recent accounting conference, chairman Hans Hoogervorst said that the model that leads to day-one expected losses across the board could have “serious, unintended consequences.”

The IASB chairman noted that when earnings are depressed, cutting bank on new lending (and thus avoiding day-one losses) would be a very easy way for banks to boost their profits. “Bank lending might become even more pro-cyclical than already is the case!”

The Times notes that the FASB is now developing an alternative model that involves banks making provisions based on expected losses across the lifetime of the loan, rather than just one year initially.

To read the Financial Times story click here.

For Hans Hoogervors’ speech click here.