The time dimension of bank provisions, particularly potential pro-cyclicality and financial stability implications of the new approach, sets the stage for an exciting Panel 4. Admittedly, there is still little evidence gathered so far, given the short period of time over which the expected loss model has been in force, to arrive at definitive conclusions; intuitively, moving from the incurred loss paradigm to the expected loss model should reduce the procyclicality of provisions in the future. I am sure that this issue will attract interest from academics, supervisors and practitioners not only during this conference but far beyond it as more evidence and data are gathered. Whether provisions are pro-cyclical or not is a key matter for financial stability. Finally, learning from the implications and interactions between the new provisioning standards and other types of regulations to which banks are subject – most notably financial market regulations and micro- and macro-prudential regulations – will prove a perfect topic  5/7  for the final panel of the conference. In this regard, the Banco de España experience2 with the setting-up of so-called dynamic provisioning3 , which shares many characteristics of the current countercyclical capital buffer and is close to the concept of the expected loss model, serves as a good example of how closely linked provisioning standards, capital and macroprudential policies are. From a financial stability perspective, the fact that supervisors are given macroprudential tools should allow us to deal better with lending expansions and contractions in order to protect the economy from financial excesses.

For a successful implementation of the new loss-measure approach, banks’ forecasting capacity in respect of economic downturns and anticipation of significant deterioration of both credit standards and credit risk are key. As such, banks should strive to apply and use the appropriate procedures to ensure the timely determination of future significant increases in credit risk and, more generally, they should be able to properly adjust their models and predictions to the existing macroeconomic conditions at any time, regardless of how frequently they may change. Let me briefly review what may be considered the main challenges for this new paradigm of provisioning, rightly following the content of each of the conference panels. Panel I of the conference will enlighten us with relevant background information to fully understand why and how the new provisioning model has changed, the potential pros and cons of alternative approaches, the differences between models and the reasons behind those differences. As briefly commented, modelling expected losses is a challenge. In Panel 2, views from academia, practitioners and auditors will no doubt help us to broaden our perspective on issues such as the existing differences between the models needed to calculate the new provisions and those already in use for regulatory purposes, or for internal credit risk management. Implementation issues, apart from the pure modeling challenges, such as compliance costs, reliable reporting under the new standards, comparability of financial statements across institutions, internal organisation, etc. are highly interesting aspects that will also be presented from the industry and supervisory viewpoint in Panel 3.