In other words: losses we cannot see coming versus the net present value of predictable future losses. The question for us is: how to translate the prudential notion of expected and unexpected losses to day-to-day accounting practises? I have two messages: The first: Accounting standards should be designed to reflect expected losses, no more and no less than that.
And own funds should be designed to absorb unexpected losses. The second: Financial reporting and financial stability supplement one another. They are like a horse and carriage. I believe a combination of transparent capital requirements and accounting concepts based on expected losses, would boost trust in financial institutions and thus improve financial stability.