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𝐑𝐞𝐚𝐜𝐭𝐢𝐯𝐞 𝐭𝐨 𝐏𝐫𝐨𝐚𝐜𝐭𝐢𝐯𝐞: 𝐄𝐱𝐩𝐥𝐨𝐫𝐢𝐧𝐠 𝐂𝐨𝐮𝐧𝐭𝐞𝐫𝐜𝐲𝐜𝐥𝐢𝐜𝐚𝐥 𝐏𝐨𝐭𝐞𝐧𝐭𝐢𝐚𝐥 𝐨𝐟 𝐈𝐅𝐑𝐒 9 This insightful 2023 study evaluates the cyclicality of loan loss provisions under IFRS 9, focusing on its Expected Credit Loss (ECL) model during crises such as COVID-19. The research analyzes whether IFRS 9's forward-looking approach reduces financial instability by mitigating procyclicality, a critical flaw under IAS 39. The authors assess the model’s effectiveness in times of economic stress providing key insights for Financial Risk Managers and Regulators. 🔍 𝐖𝐡𝐚𝐭 𝐌𝐚𝐤𝐞𝐬 𝐓𝐡𝐢𝐬 𝐏𝐚𝐩𝐞𝐫 𝐄𝐬𝐬𝐞𝐧𝐭𝐢𝐚𝐥? This paper provides one of the first empirical tests of IFRS 9’s performance under a real-world global stress scenario, offering vital insights to enhance financial stability through improved credit risk management practices 💡 𝐊𝐞𝐲 𝐇𝐢𝐠𝐡𝐥𝐢𝐠𝐡𝐭𝐬 The study examines 51 Eurozone banks over seven years, revealing the complex effects of IFRS 9, highlighting necessity of strong statistical methods to understand provisioning behaviors under varying conditions. A. 𝐏𝐫𝐨𝐜𝐲𝐜𝐥𝐢𝐜𝐚𝐥𝐢𝐭𝐲 𝐯𝐬. 𝐂𝐨𝐮𝐧𝐭𝐞𝐫𝐜𝐲𝐜𝐥𝐢𝐜𝐚𝐥𝐢𝐭𝐲: The authors observed that while IFRS 9 initially exhibited procyclical tendencies (consistent with IAS 39), there was limited evidence of countercyclical movement in loan loss provisions during 2020. While this finding offers some optimism, the authors caution that further data and analysis are required to confirm the sustained effectiveness of IFRS 9 during various stress scenarios. We'd love to hear your thoughts on this in the comments below 👇 B. 𝐈𝐧𝐧𝐨𝐯𝐚𝐭𝐢𝐯𝐞 𝐀𝐩𝐩𝐫𝐨𝐚𝐜𝐡 & 𝐂𝐡𝐚𝐥𝐥𝐞𝐧𝐠𝐞𝐬 𝐢𝐧 𝐀𝐩𝐩𝐥𝐢𝐜𝐚𝐭𝐢𝐨𝐧: According to the authors, IFRS 9's approach, considering macroeconomic factors, offers potential improvements over IAS 39. However, they note challenges related to managerial discretion and uneven application across banks, which could affect the model's consistency and comparability. The study emphasizes the vital need for continuous oversight of provisioning models to achieve the perfect balance between prudence and financial stability. A big thanks to the authors for delivering such a profound and impactful analysis, truly a deep dive into this essential topic! Source: https://shorturl.at/Z3XOw 𝗘𝗻𝗷𝗼𝘆𝗲𝗱 𝗥𝗲𝗮𝗱𝗶𝗻𝗴 𝘁𝗵𝗶𝘀? Join a global vibrant community of ~15000 finance and risk management professionals at Risk Inn 𝗦𝘁𝗮𝘆 𝗜𝗻𝗳𝗼𝗿𝗺𝗲𝗱 𝗮𝗻𝗱 𝗖𝗼𝗻𝗻𝗲𝗰𝘁𝗲𝗱 🤝 https://bit.ly/4dXIc2h (𝘞𝘦 𝘝𝘦𝘳𝘪𝘧𝘺) #finance #riskmanagement #creditrisk #ifrs9 #accountingstandards #banking #ifrs9limitation #globalbanking #financialstability #creditloss #countercyclical #frm #cfa #scr #rai #marketrisk #irrbb #financialregulations #eclmodel #bankingregulations #ias39 #ifrsstandards #financialriskmanagement #big4 #loanprovisions #capitaladequacy #gsibs #financialcrisis #eurozonebanks #businessfinance #riskinn