Faced with a systemic increase in defaults, the delay in recognizing loan losses resulted in banks having to make 11  higher provisions which eroded the capital maintained precisely at a time when banks needed to shore up their capital, thereby affecting their resilience and exacerbating the systemic risks.
Further, the delay in recognizing loan losses and consequent higher dividend pay-outs reduced internal accruals to the capital. 26. This experience prompted the G-20 and the Basel Committee on Banking Supervision (BCBS) to recommend to accounting standard setters to modify the provisioning practices to incorporate a more forward-looking approach rather than to require the losses to happen before they are recognized.