Countercyclical provisions, a partial answer to disaster myopia

Abstract

This article contains the discussion made by Richard Herring after the presentation of the panel based on the book The Countercyclical Provisions of the Banco de España (2000-2016), that took place in Madrid at the first Conference on Financial Stability. This Conference was organized by the Banco de España and the Centro de Estudios Monetarios y Financieros (CEMFI), on 24 and 25 May 2017. The article reviews several aspects of the provisions, in particular their consideration as a possible, although nuanced, answer to disaster myopia. In this regard, the accountants’ view on the provisions, the innovative elements incorporated by them, the revision of loss concepts and their interaction along the way with capital and provisions, are also part of the issues reviewed in the article. The relevance of stress tests and their relation with the Spanish countercyclical provisions together with a final reflection on the macroprudential policies are two additional pieces of interest addressed.