Measuring the procyclicality of impairment accounting regimes: a comparison between IFRS 9 and US GAAP

Alejandro Buesa, Francisco Javier Población García and Javier Tarancón

No 2347, Working Paper Series from European Central Bank

Abstract: The purpose of this paper is to compare the cyclical behavior of various credit impairment accounting regimes, namely IAS 39, IFRS 9 and US GAAP. We model the impact of credit impairments on the Profit and Loss (P&L) account under all three regimes. Our results suggest that although IFRS 9 is less procyclical than the previous regulation (IAS 39), it is more procyclical than US GAAP because it merely requests to provision the expected loss of one year under Stage 1 (initial category). Instead, since US GAAP prescribes that lifetime expected losses are fully provisioned at inception, the amount of new loans originated is negatively correlated with realized losses. This leads to relatively higher (lower) provisions during the upswing (downswing) phase of the financial cycle. Nevertheless, the lower procyclicality of US GAAP seems to come at cost of a large increase in provisions. JEL Classification: G21, G28, K20

Keywords: banking system; cyclicality; provisions; regulation (search for similar items in EconPapers)
Date: 2019-12
Note: 1845518
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Working Paper: Measuring the procyclicality of impairment accounting regimes: a comparison between IFRS 9 and US GAAP (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20192347

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