A second very practical concern is that, in most jurisdictions, the prudential authorities do not have the power to use prudential instruments in the way recommended. Acquiring such rights would probably involve a long and difficult political process. Consider, for example, the strong opposition already being mounted by the accounting profession and the tax authorities to the idea of forward-looking provisioning for expected losses.
How the use of such instruments, effectively imposed from outside, might be reconciled with the current trend to relying more on financial firms’ internal assessments of the risks they are bearing is a closely related question. Third, there is the fallacy of composition problem referred to above.