loss ” model that is currently in place was that it did not reflect the need for earlier recognition of loan losses. under this model, the bank would usually start to provide for the related credit losses only once those losses actually materialised. from a financial stability perspective, and i hope we can all agree, this is too late and is highly pro - cyclical. in my view one of the key lessons from the crisis is that consideration should also be given to the losses that are inherent to specific assets and are expected to arise over the lifetime of these assets. these two examples point to another striking feature of the current financial reporting regime, namely that traditional performance measures mainly based on accounting figures relating to net income are inadequate in periods of high volatility. therefore let me now turn to potential remedies. first of all, let me be clear on one thing : there is no way back to full historical cost accounting. in some cases, for example trading book items, fair value information may indeed be useful. there are however a set of possible measures which may help address the described shortcomings and to – at least partially – reconcile the needs of investors and prudential regulators. first, adjustment measures should be put in place at regulatory level to prevent the depletion of regulatory capital via distributions during upturns. a concrete example would be the introduction of a non - distributable economic cycle reserve along the lines of what was proposed by adair turner in the so - called “ turner review ” ( march 2009 ). second, we should move from the current “ incurred loss impairment model ” to an “ expected loss impairment model ”. in this context, the ecb welcomes the iasb proposal for a new impairment methodology that is based on the concept of “ expected losses ”, which would contribute to mitigating pro - cyclicality. given that the work in this field is on - going, the ecb urges the iasb to continue working together with the basel committee on banking supervision with a view to developing an operational solution to a more forward - looking provisioning approach. “ evaluating the impact of fair value accounting on financial institutions : implications for accounting standards setting and bank supervision ”, federal reserve bank of boston, december 2011. bis central bankers ’ speeches third, to better reflect actual risks in the performance measures for banks, my proposal would be to introduce more sustainable risk - adjusted performance indicators. a concrete example might be the use of a broader performance measurement framework

as proposed in the september 2010 eu banking structures report. such broader performance measures would incorporate more forward - looking information, encompass more aspects of the performance than just profitability and therefore could be less prone to manipulation from the markets relative to a pure market - oriented indicator such as return on equity. moreover, it provides investors with relevant risk - based information that is useful and relevant for investors. in this context, a bis paper already proposed in 2005 the usefulness of complementing the current accounting reporting framework with risk information. 2 ladies and gentlemen, not just for the aforementioned reasons do central banks have an interest in ifrss. there is an additional reason. in particular, an increasing number of central banks around the globe either comply fully with ifrss or apply an adjusted version of ifrss. issues like ( a ) volatility in the profit and loss account from the use of fair value accounting, ( b ) poor interaction of accounting rules with profit distribution rules and the resulting impact on the financial strength of central banks, as well as ( c ) the extensive disclosure requirements that might not be in line with policy objectives become relevant in this context. i would like to emphasise that the ecb has been a strong supporter of the objectives and work of the iasb since its inception and i personally believe that the iasb has significantly progressed in a relatively short period. the iasb has recognised the widening stakeholder interest in the development of accounting standards, and i appreciate that it has actively engaged with central banks, supervisors and financial stability experts in developing what should eventually be a single set of globally accepted, high quality accounting standards. finally on this point i am delighted that mr hans hoogervorst, chair of the iasb, has agreed to join us today to share with us his vision on the future of ifrss, and i am delighted that mrs flores, chair of the european financial reporting advisory group is also here with us to present europe ’ s view regarding ifrs developments on financial instruments. the second part of this conference deals with the sensitive issue of the financial strength of central banks. this issue has become more relevant over the last years as, due to non - standard operations, balance sheet risks, and in particular credit risk, have increased for a number of central banks. a lot has been written by central bank experts in the past decade on central bank independence and the link with the central bank ’ s financial strength, sometimes with conflicting views. a number of studies have