Discussion of ‘Moving toward the expected credit loss model under IFRS 9: Capital Transitional Arrangement and bank systematic risk'

The change of the loan loss accounting model in International Financial Reporting Standard 9 (IFRS 9) that took place after the financial crisis came as a result of a long standard-setting process in which different views, sometimes contradictory, had to be balanced. Bank prudential regulators and supervisors had a significant role in the process, their influence in the final output was relevant, and they have a very active role in the implementation of the new model. Empirical research on the interaction between bank regulation and accounting standards, in particular when there are changes in response to a financial crisis is of great interest to help understand bank accounting practices. The study by Dong and Oberson (2021) (D&O) makes a welcome contribution to this field. As highlighted by D&O, two significant changes arise with the adoption of IFRS 9: (i) expected losses are considered, so there is anticipation of recognition of loan losses compared to IAS 39; and (ii) the consideration of forward-looking information increases managerial discretion. From the prudential regulation perspective, the implementation of IFRS 9 should have a negative impact on the regulatory capital, which is why the Basel Committee of Banking Supervision (BCBS) in 2017 introduced the Capital Transitional Arrangement (CTA), to allow banks to keep the incurred loss model for up to five years to calculate regulatory capital, while adapting their risk management. D&O has two main aims: First, to analyse the causes, and second, to analyse the consequences, of adopting the CTA option. The paper sets out the implications mainly from the bank regulation (prudential) perspective, but also from the accounting perspective. From the