10  BIS central bankers’ speeches  It should be noted that dynamic provisions are no panacea for all ills plaguing the financial system. It needs to be accompanied by other macro-prudential tools aimed at mitigating pro-cyclicality and systemic risks.
Further, while calibrating a dynamic provisioning system, care needs to be taken to maintain countercyclical reserves in line with expected losses so as to avoid both insufficient buffers and excessive provision coverage. There is no guarantee that dynamic provisions will be enough to cope with all the credit losses of a downturn if the cycle turns out to be deeper than anticipated.