The foremost critique of the above approach has come from the accounting fraternity which interprets this as an instrument which can be potentially misused for profit smoothing. However, post crisis there is greater appreciation of the prudential benefits of dynamic provisioning even from accounting standard setters. It should be possible to have inbuilt checks and balances to ensure that the potential misuse is minimized.
Additional technical work in necessary for studying business cycle patterns, and determining adequacy of provisions considering experience over the economic cycle. This would involve factoring in historical loss experience and qualitative factors such as underwriting standards and economic conditions. 4  BIS Review 156/2009  Micro prudential regulation From the micro perspective, the focus is on strengthening the resilience of individual institutions.