CECL: Timely Loan Loss Provisioning and Bank Regulation

We investigate how provisioning models interact with bank regulation to affect banks' risk-taking behavior. study an accuracy versus timeliness trade-off between incurred loss model (IL) and expected (EL) such as current credit or International Financial Reporting Standards 9. Relative IL, even though EL improves efficiency by prompting earlier corrective action in bad times, it induces banks originate either safer riskier loans. Trading off ex post benefits ante real effects, we show that more timely information under enhances when are insufficiently capitalized regulatory intervention is likely be effective. Conversely, moderately sufficiently costly, switching impairs efficiency. From a policy perspective, our analysis highlights the roles capital effectiveness of play determining economic consequences models. spurs supply financial stability economies where intervening operations relatively frictionless and/or regulators can tailor incorporate about losses.