The national accounting frameworks allow for some flexibility with regard to provisioning. And what a bank then chooses may not be sufficient from the supervisors’ viewpoint, taking into account the bank’s risk profile. That’s why supervisors should be able to impose prudential deductions from own funds. And third, there are some tools which are part of the European toolbox not once but twice.
And this can cause problems. A relevant case relates to banks that get into trouble and the question of how to intervene as early as possible. As a rule of thumb, banks don’t get into trouble out of the blue. Rather, it is a gradual downfall in most cases.